Mechanisms, Roles and Consequences of Governance : Emerging Issues 9781783507061, 9781783507054

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MECHANISMS, ROLES AND CONSEQUENCES OF GOVERNANCE: EMERGING ISSUES

STUDIES IN PUBLIC AND NON-PROFIT GOVERNANCE Series Editors: Luca Gnan, Alessandro Hinna, Fabio Monteduro Recent Volume: Volume 1:

Conceptualizing and Researching Governance in Public and Non-Profit Organizations
Edited by Luca Gnan, Alessandro Hinna, Fabio Monteduro

STUDIES IN PUBLIC AND NON-PROFIT GOVERNANCE VOLUME 2

MECHANISMS, ROLES AND CONSEQUENCES OF GOVERNANCE: EMERGING ISSUES EDITED BY

LUCA GNAN University of Rome “Tor Vergata”, Rome, Italy

ALESSANDRO HINNA University of Rome “Tor Vergata”, Rome, Italy

FABIO MONTEDURO University of Rome “Tor Vergata”, Rome, Italy

United Kingdom
North America
Japan India
Malaysia
China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2014 Copyright r 2014 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78350-705-4 ISSN: 2051-6630 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

CONTENTS LIST OF CONTRIBUTORS

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PART I: EMERGING ISSUES IN PUBLIC GOVERNANCE ADVANCING PUBLIC GOVERNANCE RESEARCH: INDIVIDUAL AND COLLECTIVE DYNAMICS IN AND AROUND THE BOARDROOM Alessandro Hinna, Ernesto De Nito, Gianluigi Mangia, Danila Scarozza and Andrea Tomo

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GOVERNING PUBLIC VALUE: HOW TO FOSTER KNOWLEDGE-INTENSIVE COLLABORATION IN THE PUBLIC SECTOR Miche`le Morner and Manuel Misgeld

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FINANCIAL PERFORMANCE IN INDIAN STATEOWNED ENTERPRISES FOLLOWING CORPORATE GOVERNANCE REFORMS Stuart Locke and Geeta Duppati

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THE DEVELOPMENT OF THE GOVERNANCE OF REGULATORY NETWORKS: THE CASE OF THE EUROPEAN TELECOMMUNICATIONS REGULATORY NETWORK Angel Saz-Carranza, Francisco Longo and Susanna Salvador Iborra

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CONTENTS

PART II: EMERGING ISSUES IN NON-PROFIT GOVERNANCE EMPIRICAL RESEARCH ON NONPROFIT BOARDS: MAIN FEATURES AND DIFFERENCES FROM THE LITERATURE ON CORPORATE AND PUBLIC BOARDS Sonia Moi, Fabio Monteduro and Luca Gnan

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WHAT DRIVES GOOD PHILANTHROPY? THE RELATIONSHIP BETWEEN GOVERNANCE AND STRATEGY IN FOUNDATIONS Giacomo Boesso, Fabrizio Cerbioni and Kamalesh Kumar

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TRANSFER TO TRANSFORM. LEVERAGING FIRM’S KNOWLEDGE TO MOLD CORPORATE FOUNDATION’S EFFECTIVENESS Marco Minciullo and Matteo Pedrini

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VOLUNTEER MANAGEMENT AND MEASUREMENT SYSTEMS FOR ITALIAN VOLUNTARY ORGANISATIONS Laura Berardi and Michele A. Rea

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LIST OF CONTRIBUTORS Laura Berardi

Department of Economic Studies (DEC), G. D’Annunzio University of ChietiPescara, Pescara, Italy

Giacomo Boesso

Department of Economics and Management, University of Padova, Padova, Italy

Fabrizio Cerbioni

Department of Economics and Management, University of Padova, Padova, Italy

Ernesto De Nito

Department of Legal, Historical, Economic and Social Sciences, University Magna Græcia of Catanzaro, Catanzaro, Italy

Geeta Duppati

Department of Finance, Waikato Management School, University of Waikato, New Zealand

Luca Gnan

Department of Economics and Finance, University of Rome “Tor Vergata”, Rome, Italy

Alessandro Hinna

Department of Economics and Finance, University of Rome “Tor Vergata”, Rome, Italy

Kamalesh Kumar

Department of Management Studies, College of Business, University of Michigan-Dearborn, Dearborn, MI, USA

Stuart Locke

Department of Finance, Waikato Management School, University of Waikato, Waikato, New Zealand

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LIST OF CONTRIBUTORS

Francisco Longo

Institute for Public Governance and Management, ESADE Business School, Universitat Ramon Llull, Barcelona, Spain

Gianluigi Mangia

Department of Economics, Management and Institutions and Finance, University of Naples “Federico II”, Naples, Italy

Marco Minciullo

Universita` Cattolica del Sacro Cuore, Milano, Italy

Manuel Misgeld

German Research Institute for Public Administration Speyer, Speyer, Germany

Sonia Moi

University of Rome “Tor Vergata”, Rome, Italy

Fabio Monteduro

Department of Economics and Finance, University of Rome “Tor Vergata”, Rome, Italy

Miche`le Morner

German University of Administrative Sciences Speyer, Speyer, Germany and Reinhard-Mohn-Institute of Management and Corporate Governance (RMI), Witten/Herdecke University, Witten, Germany

Matteo Pedrini

Universita` Cattolica del Sacro Cuore, Milano, Italy

Michele A. Rea

Department of Economic Studies (DEC), G. D’Annunzio University of ChietiPescara, Pescara, Italy

Susanna Salvador Iborra

ESADEgeo (Center for Global Economy and Geopolitics), ESADE Business School, Universitat Ramon Llull, Barcelona, Spain

Angel Saz-Carranza

ESADEgeo (Center for Global Economy and Geopolitics), ESADE Business School, Universitat Ramon Llull, Barcelona, Spain

List of Contributors

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Danila Scarozza

Department of Economics and Finance, University of Rome “Tor Vergata”, Rome, Italy

Andrea Tomo

Department of Economics, Management and Institutions and Finance, University of Naples “Federico II”, Naples, Italy

PART I EMERGING ISSUES IN PUBLIC GOVERNANCE

ADVANCING PUBLIC GOVERNANCE RESEARCH: INDIVIDUAL AND COLLECTIVE DYNAMICS IN AND AROUND THE BOARDROOM Alessandro Hinna, Ernesto De Nito, Gianluigi Mangia, Danila Scarozza and Andrea Tomo ABSTRACT Purpose
In recent years, increasing scholarly attention has been directed towards the field of governing bodies research. However, little attention has been paid to the behavioural perspective on studying public boards. Aiming to fulfil this gap this paper offers a review of the international literature addressing boards behaviour within the unique organizational setting of public sector. Design/methodology/approach
Considering as behavioural studies those publications focusing on actors, processes, decision-making, relationships and interaction inside and outside the boardroom, 91 papers were analysed. Adopting the framework provided by Huse (2007), the

Mechanisms, Roles and Consequences of Governance: Emerging Issues Studies in Public and Non-Profit Governance, Volume 2, 3
39 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-663020140000002001

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papers are classified following four behavioural dimensions/blocks which are crucial to understand board dynamics: board members, interactions, structures and leadership, decision-making culture. Findings
The literature review shows the increasing production
in the last years
on the theoretical issues related to the behavioural perspective in public governance literature. The most relevant part of these contributions addresses the theoretical dimensions of the board member’s characteristics and of structural leadership. Originality/value of the chapter
The manuscript reveals the need to adopt a more organizational approach for studying the behavioural categories and levels of analysis proposed by public governance literature. Moreover, the article evidences some possible directions for future research that might further contribute to enrich the ‘behavioural governance perspective’ in public organizations. Keywords: Board; behavioural perspective; public sector

INTRODUCTION In public sector literature, the dimensions influencing the governing bodies effectiveness are announced as relevant issues, but they still remain not investigated (Farrell, 2005; Hodges, Wright, & Keasey, 1996). Anyway, while in private sector literature there is a stream of research on board behavioural dimensions, exploring ‘actors, decisions-making processes, relationships and interactions inside and outside the boardroom’ (Gabrielsson & Huse, 2004, p. 19), public sector literature presents few studies including behavioural dimension of governing bodies (Hinna, Mangia, & De Nito, 2010). Starting from these premises, we present a systematic review of international literature regarding boards behaviour in the public and non-profit organization operating in the scope of the public sector, to evidence if, and in which terms, the board behavioural perspective has been investigated in the academic debate. The article proceeds as follows: in the first part the reasons for studying board behaviour in public sector are presented, while in ‘The board behavioural perspective’ section we present the more relevant contribution on board behavioural topics and variables. In section ‘Main topics for literature review’, we present the conceptual framework adopted to analyse

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the collected papers through the literature review. In the following sections the method of research and the analysis are presented. The final sections contain the presentation of the results, followed by discussions and conclusions.

THE REASONS FOR STUDYING BOARD BEHAVIOUR IN PUBLIC SECTOR The public sector reforms of the last twenty years have had significant impacts on the mechanisms and systems of governance of individual public and non-profit organizations (Cornforth & Brown, 2013; Fields, 2007; Goodstein, Guatam, & Boeker, 1994). In this context, since the mid-1990s, some authors, such as Hodges et al. (1996), Cornforth and Edwards (1999) and Farrell (2005), highlighted the organization’s board or governing body as a particular object of interest because of the increasing relevance of board control in a very wide range of public sector services and organizations. Thus, as Skelcher (1998) already pointed out, it is expedient to carry out an in-depth analysis of their internal and external functioning, while few years later Cornforth (2003, pp. 251
252) asked for a deeper understanding of competencies, skills, abilities and behaviours of public boards, as had happened in literature of corporate governance (Forbes & Milliken, 1999). Despite the importance that the board was going to take in achieving the expected reform processes, the literature on public governance in that period
as well as in more recent years (Hinna et al., 2010)
focused on the analysis of boards tasks expectations in public administrations, evidencing strategic tasks (Dopson, Stewart, & Locock, 1999; Jorgensen, 1999; Sullivan, Barnes, & Matka, 2006), control tasks (Clatworthy, Mellett, & Peel, 2000; Considine, 2000; Hood, James, & Scott, 2000; Hyndman & Eden, 2001; Midttun & Kamfjord, 1999; Sanderson, 2002; Siciliano, 2002; Smith & Beazley, 2000; West & Durant, 2000) or networking tasks (Klijn & Skelcher, 2007; Lowndes & Wilson, 2003). Only few scholars investigated the human side of boards (Benz & Frey, 2007; Boyne & Dahya, 2002; Cornforth & Edwards, 1999; Greer & Hoggett, 2000; Kirkbride & Letza, 2003). On the contrary, as recently pointed out by Cornforth (2012) even if the governing body has the main responsibility for carrying out governance functions, the organizational governance system is wider than this and includes the framework of responsibilities, requirements and accountabilities within which public (and no profit) organizations operate. Moreover, it also includes other actors within

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organizations, such as managers, members and other groups, that may contribute to carrying out governance functions. This opens up the scope of research examining the board’s behavioural implications for public organizations in governing the system of relationships, focusing on: the relationship between board and ‘external’ actors (stakeholders), the relationship between the board and ‘internal’ actors (management) and, finally, the relationship and responsibilities inside the boardroom, looking at the relationships in which public boards are engaged to define their tasks and the strategic dimensions of public value (Gnan, Hinna, & Monteduro, 2013).

THE BOARD BEHAVIOURAL PERSPECTIVE In corporate governance debate recent researches focused on the human side of governance (Forbes & Milliken, 1999; Gabrielsson & Huse, 2004; Huse, 2007; Samra-Fredericks, 2000; Westphal, 1999; Zona & Zattoni, 2007). Moving towards a behavioural theory of boards they revealed a better understanding of ‘actors, processes, decisions-making, relationships and interactions inside and outside the boardroom’ (Gabrielsson & Huse, 2004, p. 19). This stream of research states a strong need to closely study the behavioural processes and dynamics in and around the boardroom to better understand the conditions for effective governance (Leblanc & Schwartz, 2007; McNulty & Pettigrew, 1999; van Ees, Gabrielsson, & Huse, 2009; Westphal, Sidel, & Stewart, 2001). Combining their discussion on the examination of both the human factor of corporate governance and board behaviour implications, authors also state the importance of human and social capital of boards (Hillman & Dalziel, 2003) and board members expertise (Payne, Benson, & Finegold, 2009) as an important antecedents for board effectiveness to govern management (Westphal & Zajac, 2013). Following the several calls for studying board processes and dynamics (Finkelstein & Mooney, 2003; Huse, 2007; Pye & Pettigrew, 2005; Zona & Zattoni, 2007) the starting point adopted by this literature was represented by theoretical concepts used to study, more in general, behaviour in organizations (Argote & Greve, 2007). A behavioural perspective of board and governance (Huse, 2007) was developed, in fact, on the concepts of bounded rationality (Cyert & March, 1963; Foss, 2001; Hendry, 2002, 2005; March & Simon, 1958; Ocasio, 1999; Simon, 1955), satisfying behaviour (Cyert & March, 1963; Hendry, 2005), organizational norms and routines (Cyert & March, 1963; March & Simon, 1958; Ocasio, 1999; Zahra & Filotatchev, 2004), organizational learning (Nelson & Winter,

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2002) and the political bargaining necessary to solve conflicts (Cyert & March, 1963; Huse & Rindova, 2001). As suggested by Pye and Pettigrew (2005) the board behaviour analysis can be articulated on three different levels: the inputs of board behaviour, the individual/group boardroom’s processes and the board outcomes in terms of behaviour. Even previous contributions (Cohen & Bailey, 1997; Higgs & Dulewicz, 1998; Smith et al., 1994) had clearly shown that the input variables (i.e. demographic variables) (Brown, 2005; Dalton & Dalton, 2005; Siciliano, 1996; van der Walt & Ingley, 2003) on one hand and the system of individual/ group boardroom’s processes on the other (Brundin & Nordqvist, 2008; Pettigrew & McNulty, 1995; Shen, 2005) are likely to impact board behavioural outcomes (Finkelstein & Hambrick, 1996; Pettigrew & McNulty, 1995; Rutherford & Buchholtz, 2007; Samra-Fredericks, 2000). On this issue Pettigrew argue that ‘great inferential leaps are made from input variables such as board composition to output variables’ (Pettigrew, 1992, p. 171). In this frame, recent developments in corporate governance literature demonstrate the need to incorporate the study of process variables (Finkelstein & Mooney, 2003; Huse, 2007; Pye & Pettigrew, 2005; Zona & Zattoni, 2007) in order to expand the understanding of the factors that contribute to board outcomes. The ability of board members to fulfil their role, in fact, depends on the characteristics of individuals who become directors and their selection processes, on contextual factors, pressures and relationships with actors (internal or external) outside the boardroom (Pettigrew, 1992) and, finally, on the board members’ ability to get the work of the board done as a group (Finkelstein & Mooney, 2003; Forbes and Milliken, 1999; Nicholson & Kiel, 2004) (Fig. 1).

External Context (actors and contingencies)

Board roles and Board Tasks

Board members Board processes

Board members Board processes

Internal Context (actors and contingencies)

Fig. 1.

The Research on Board Behaviour: Level of Analysis.

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MAIN TOPICS FOR LITERATURE REVIEW On the basis of previous corporate governance studies, the behavioural dimensions could be categorized as follows (Huse, 2007): a. board characteristics: these are the formal and structural characteristics that denote the board as a team (characteristics of the actors, demographic composition, selection process, compensation, competence/skills and motivation). b. board dynamics: they refer to the process dimensions that concur to explain board behaviour (interactions both inside and outside the boardroom, ethics, consequences from the Chief Executive Officer (CEO) duality and power, decision-making processes, conflicts, etc.). In this framework four main dimensions of analysis are crucial to understand board dynamics (Fig. 2): board members, board interactions, board structures and leadership, board decision-making culture.

Board Members The first block includes four main concepts: the board demography and composition, competences, motivation and compensation.

Fig. 2.

Framework of Analysis.

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Board composition is usually defined in terms of numbers of board members, the ratio insider
outsider, board tenure and diversity (Finkelstein & Mooney, 2003; Milliken & Martins, 1996). These elements could positively or negatively influence in various ways the capability of board to carry out its tasks (Dalton & Daily, 1998; Forbes & Milliken, 1999; Horwitz & Horwitz, 2007; Lawrence, 1997; Melone, 1994). For example, resource dependence theorists argue that both board size and diversity contribute to a superior board performance (Dalton, Daily, Johnson, & Ellstrand, 1999; Jensen, 1993; Pfeffer & Salancik, 1978). Belong to this areas are also the competences of board members with reference to the presence of the required knowledge, experiences and skills: the background of each board member, such as their combination, is a relevant element to perform the various task assigned to the board (Hillman & Dalziel, 2003; Johannisson & Huse, 2000; Nahapiet & Ghoshal, 1998). Moreover, the board dynamics may benefit from motivated individuals (Steel & Ko¨nig, 2006): in corporate governance studies professional standards, reputation and awareness of liability have been labelled intrinsic motivation (Deci, 1975; Deci & Ryan, 1985). Other scholars sustain that the main motivation of board members is to represent those who elected them (Hermalin & Weisbach, 1991; Huse, 2007). All these elements explain board behaviour more than the adopted mechanisms for compensation (Deci, Koestner, & Ryan, 1998). However, also compensation and incentives issues have received considerable attention in literature (Erez & Somech, 1996; Hermalin & Weisbach, 1991; Kosnik, 1990). The most common thinking is that ‘high fixed compensation is an incentive to be a board member, while performance or activity based compensation serve as impetus for working on the board’ (Huse, 2007, p. 78). All these characteristics make possible the existence of a ‘market’ of board members, for their election or selection (Huse, 2007).

Interactions According to Huse (2007) the interactions are the more relevant issue for the understanding of the human side of corporate governance, probably the central core for explaining board dynamics. Pioneer studies on board behaviour argue that interactions difficulties (i.e. process losses) prevent boards from achieving their full potential (Forbes & Milliken, 1999; Gibson & Earley, 2007). Coherently with the behavioural perspective, in our theoretical contribution board has been considered as an open system

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with interactions between board members, the top management team and various other actors both inside and outside the boardroom (Pettigrew, 1992). This, of course, should be especially true for public sector organization (Gnan et al., 2013). These are multi-stakeholders structures with a main objective in managing and gaining legitimacy through public consensus. Different stakeholders have significant differences in expectations. Furthermore, the divergence and convergence of stakeholders’ expectations may provide an organization’s management with critical leverage in using boards for stakeholder management (Huse & Eide, 1996). Moving to the interactions inside the boardroom finalized to the exchange of information are described and classified in terms of frequency of board meetings, frequency of interactions between the directors besides board meeting, frequency of face-to-face interactions between the directors, the main interaction partner. However, the roles played by the boards depend also by the changing relationships between the external and internal actors. Because of the pressures deriving from the requests of the different actors involved, boards are liable to characterize issues differently and to hold different opinions about what the appropriate responses to these issues are (Dutton & Jackson, 1987). In particular, board members have to interact with internal actors, especially top management team, in order to shape strategic directions and to make informed decisions, protecting the interest of stakeholders (Hendry & Kiel, 2004; Huse, 2007; McNulty & Pettigrew, 1999; Stiles & Taylor, 2001). Power is an another important issue in board dynamics (Mintzberg, 1983; Pearce & Zahra, 1991; Pettigrew & McNulty, 1995): through the exercise of power, board members may contribute (more or less) to the strategizing in boardroom (Johnson, Melin, & Whittington, 2003; Ravasi & Zattoni, 2006; Zajac & Westphal, 1996). According to Dahl (1957) ‘An individual has power over another individual to the extent that the former can get the latter to do something that the latter would not otherwise do’ (p. 202). In addition, power as a relation between actors is linked to the concept of influence (Huse, 2007; Pettigrew & McNulty, 1998; Yukl, 1998). Literature (Finkelstein, 1992; Huse & Eide, 1996; Luhmann, 1988; Lukes, 1974) define different types of power (direct, indirect, etc.), but with particular reference to board dynamics it is important to stress that power and influence could both induce to the creation of alliance both inside and outside the boardroom and explain also the political dynamics (Michels, 1962; Ocasio, 1994).

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For understanding relationships among actors and, more in general, behaviours also the role of trust is an essential element (Bromiley & Cummings, 1995; Browing, Beyer, & Shetler, 1995; Hosmer, 1995, Huse, 1998, 2007; Korsgaard, Schweiger, & Sapienza, 1995; Larson, 1992; McAllister, 1995). Some scholars (Donaldson, 1990; Donaldson & Davis, 1991; Huse, 1990, 2000), in fact, defined trust as an important ‘bidirectional’ control mechanism used both by principal and agent. Most studies of boards and governance make implicit assumptions about trust, but few studies are precise in defining the term consequently and it is possible to distinguish, for example, between competence- or integrity-based types of trust (Hosmer, 1995; Ring, 1996; Sapienza, Korsgaard, Goulet, & Hoogendam, 2000). In this area we refers also to emotions: they could be manifested with different degrees of intensity during working processes, they may reflect rationality or irrationality, they evolve during time and they may restrain or drive behaviours (Brundin, 2002; Brundin & Nordqvist, 2008).

Structures and Leadership The third block, structures and leadership, refers to all the elements which constrain, empower or facilitate actions and behaviours within boardroom. First of all, the presence or the creation of formal and informal rules and norms may moderate the dynamics among board members (Ocasio, 1999; Patton & Baker, 1987; Westphal & Zajac, 1998). Also the various national codes of good governance provide some recommendations regarding behaviours of actors which work inside the boardroom (Higgs, 2003; Monks & Minow, 2004; Roberts, McNulty, & Stiles, 2005). Norms, rules and codes could reflect both the needs and the requests of internal and external actors (Westphal & Zajac, 1998). According to Jonnergard and Stafsudd (2011) interplay of cognitive and political factors is fundamental in maintaining as well as generating the rules and routines, which structure behaviour. Also board structures and leadership contribute to explain this block (Finkelstein, Hambrick, & Cannella, 2008). In particular, the idea of leadership (Roberts et al., 2005) refers to the roles, attributes and styles of the board chair: CEO duality, in fact, is one of the most studied issue in relation to board structures and leadership (Dalton & Daily, 1998). Moreover, the board structures is defined by the establishment of committees (audit, control, nomination, remuneration, etc.) and board instructions

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(working documents that describe the activities of the board and how the board is to meet its tasks) (Osterloh & Frey, 2004).

Decision-Making Culture The last area of interest in studying board dynamics refers to decisionmaking culture characterizing the board as a team (Forbes & Milliken, 1999; Leblanc & Gillies, 2005; Smith et al., 1994; Stiles & Taylor, 2001). The decision-making culture is defined, among others, by several concepts such as cognitive conflict, cohesiveness, commitment, creativity and criticality. The definitions of tasks elements, such as strategy or policy development and implementation, access both the affective reactions of decision-makers and the cognitive processing (Amason, 1996; Dutton & Jackson, 1987; Gibson & Earley, 2007; Huber & Lewis, 2010). Decision-making processes, in fact, involving not only board members but also internal and external actors could be characterized by several kinds of conflicts. First of all a cognitive conflict that refers to judgmental differences about how best to achieve organizational objectives; it is based on technical disagreements regarding how information might be interpreted (Amason, 1996; Berg, 2007; Higashide & Birley, 2002). In addition, both personal incompatibilities and different preferences or values (Amason, 1996) determine the development of affective conflict which tends to be emotional and more ideological in nature. Here, there may not be a political consensus among actors over the weight assigned to particular outcomes, especially outcomes involving non-monetary impacts (Berg, 2007, p. 4). Both cognitive and affective conflict are important topics to be investigated in public governance debate, since public boards have specific challenges to face related to multiple, conflicting and ambiguous goals. Therefore, defining board tasks, political and social issue interpretation activates and motivates the protection of power and resources by board members (Narayanan & Fahey, 1982) predicting both cognitive and affective conflicts (Burns, 1962; Daft & Weick, 1984; Jehn, 1997; Thomas, Shankster, & Mathieu, 1994). An important element in the resolution (or not) of the conflicts could be the way in which board members use their knowledge and skills: if they are willing to give advices based on their knowledge, to share in an open and generous way ideas, suggestions and points of view, probably the performance and the effectiveness of boards will increase (Cadbury, 2002;

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Melone, 1994; Shropshire, 2010; Sonnenfeld, 2002). This construct refers to the board ability to tap the knowledge and skills available to it and then to apply them to its tasks. It represents also the occurrence of collective learning among members (Hackman, 1987). However the use of knowledge and skills is different from cognitive conflict: the former refers to the process by which members contributions are coordinated and the latter refers to the content of members’ contribution. However, other dimensions describe the board decision-making culture. The commitment could be defined as the board members expectations about the intensity of individual behaviour (Forbes & Milliken, 1999; Huse, 2007). Board cohesiveness refers to degree to which board members are attracted each other and are motivated to remain on the board (Forbes & Milliken, 1999; Huse & Solberg, 2006). It is also expressed by a good atmosphere during work meetings; in fact, cohesiveness captures the affective dimension of members’ inclusion on the board and reflects the ability of the board to continue working together (Summers, Coffelt, & Horton, 1988). The creativity is the ability to find creative solutions to problems or to innovate the working practices in boardroom (Huse, 2007). Finally, criticality is about the real independence of each board member in behaviour and consequently, in decision-making processes (Huse, 2007).

RESEARCH METHOD Identification of the Study This research represents a continuation and a more in-depth analysis of a previous systematic research (Forbes & Lynn, 2005, pp. 564
565, 583; Hinna et al., 2010) with a specific focus on behavioural perspective of the most quoted journals for the public sector and collateral journals of particular interest in terms of international management studies started because of the lack in literature regarding boards in the public sector. We identified the set of relevant journals stemming from the AIDEA1 ranking, which is based on the Journal Quality List and the Impact Factor, as well as some previously well-established rankings (Geary, Marriott, & Rowlinson, 2004; Harvey, Morris, & Kelly, 2007). AIDEA distinguishes the following five disciplinary areas: Banking and finance, Public sector Management, Accounting and Control, Organization, Management and Strategy. Furthermore, within each disciplinary area, the journals are

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subdivided into four categories (levels), from the highest to the lowest: A, B, C, D. Consistent with the aim of our research, we analysed only journals that recur in the AIDEA A category. The research’s phase is limited to the time span from 1999 to 2012. The choice of the timeframe (in particular of the starting point) was related to the introduction of issues generally referred to in the Public governance concept in the academic international debate at the end of the 1990s, providing a new frame in which the board of directors (in the public sector) might be studied. Since the aim of this review is to study the topic of board behaviour in public and non-profit organizations, the analysis is focused on all the journals that recur in the AIDEA A category of both Public sector Management disciplinary area (13 in number) and Organization disciplinary area (13 in number). In addition we decided to take into account other seven publications, all included in the Management and strategy disciplinary area, with a specific aim in governance studies, among all the journals included in the AIDEA list, even in other disciplinary areas. On this basis, we examined the following international journals: 1. Journals in Public Sector Management Governance; Health Care Management Review; Health Policy; Health Policy Planning; Journal of Policy Analysis and Management; Journal of Social Policy; Non-profit and Voluntary Sector Quarterly; Philosophy Public Affairs; Journal of Public Administration Research and Theory; Public Administration Review; Public Administration; Social Science & Medicine; Value in Health. 2. Journals in Organization Administrative Science Quarterly; Group & Organization Management; Human Relations; Human Resource Management (US); Journal of Management; Journal of Organizational Behaviour; Leadership Quarterly; Organization; Organization Science; Organization Studies; Organizational Behaviour and Human Decision; Organizational Research Methods; Strategic Organization. 3. Journals in Management and Strategy Academy of Management Journal; Academy of Management Review; Journal of Management Studies; Journal of Management and Governance; Corporate Governance: An International Review. Overall, we analysed 31 journals (Table 1). We organized the database obtained by creating an excel worksheet for each journal examined. As suggested by Siebels and zu Knyphausen-Aufseß (2011), in order to identify the relevant and significant studies, our purpose was to follow

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Table 1. Disciplinary Area Public sector management

Organization

Management and strategy

List of Journals. Journals

Governance Health Care Management Review Health Policy Health Policy Planning Journal of Policy Analysis and Management Journal of Public Administration Research and Theory Journal of Social Policy Non-profit and Voluntary Sector Quarterly Philosophy Public Affairs Public Administration Public Administration Review Social Science & Medicine Value in Health Administrative Science Quarterly Group & Organization Management Human Relations Human Resource Management (US) Journal of Management Journal of Organizational Behaviour Leadership Quarterly Organization Organization Science Organization Studies Organizational Behaviour and Human Decision Organizational Research Methods Strategic Organization Academy of Management Journal Academy of Management Review Corporate Governance: An International Review Journal of Management and Governance Journal of Management Studies

a structured six-step selection process (finally, we will include further literature recommendation from the independent reviewers during the doubleblind review process): 1. Search of electronic libraries/databases using different keyword combinations. We carried out the research on the full text papers using various search engines (Jstor, Blackwell Synergy, Academy of Management, Wiley Interscience or simply using the search mechanism of the journal under consideration). To select papers about boards behaviour and their

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2.

3. 4. 5.

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role, for each journal we established the following combination of keywords: ‘top management team’ AND ‘public administration’; ‘top management team’ AND ‘public sector’; ‘top management team’ AND ‘public governance’; ‘board’ AND ‘public administration’; ‘board’ AND ‘public sector’; ‘board’ AND ‘public governance’. Even if ‘top management team’ and ‘board’ might be considered at first glance more directly connected to the object of our study, to ensure content validity, we also used the following general keywords: ‘public governance’; ‘public administration’; ‘state-owned enterprise’. Elimination of substantive irrelevant articles by reading the individual title and selective scanning of the abstract. We excluded book reviews, forums, interviews and panels, the main reason being that we wanted to focus on research findings rather than on opinion-based manuscripts. Consolidation of results from ‘journal research’ and elimination of duplicates. Ensuring substantive relevance by reading all abstracts of the remaining papers/publications and evaluating their respective. Further safeguarding of relevance and substance by reading the remaining articles/publications in their entirety and discarding publications that fail to address the research questions. Inclusion of additional papers that were identified via cross-referencing during the analysis of the bibliographies of papers/publications retrieved in step 5.

In particular, from the selection phase (steps 1
5) we obtained 1,943 papers. However, since the search parameters were chosen broadly, we anticipated that only a relatively small fraction of the total 1,943 publications, proved to be of substantive relevance and significance, thus justifying their inclusion in the review. The research for keywords and full text has the advantage of completeness but has the defect of generalization. In a second moment, therefore, we examined each paper in detail to verify the adherence to the topic of the research (step 5) and we used this phase to find additional paper addressing the research question (step 6).

Analysis of the Studies After the selection in the analysis of the papers, five codifiers
the authors of the paper
were involved in the analysis and in filtering the original

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database using the content analysis methodology (Krippendorff, 1980). This methodology consisted in codifying the papers into categories, by selecting those papers that satisfied one of the following two conditions: (1) the papers selected had those governing bodies as the specific object of the research and they specifically deal with behavioural perspective of board; (2) in the papers selected governing bodies were not at the core of the paper, but the paper still gave considerable input to understand ‘boards’ and their behaviour. The criteria of selection were outlined and discussed exhaustively among the codifiers to eliminate possible areas of uncertainty and ambiguity. A pilot phase preceded the analysis of our sample. In the pilot phase, a small set of papers was selected by all researchers, within the same subsample. The discrepancies between the codifiers were re-analysed and the differences resolved. On the basis of this set of selection criteria and decision rules, each researcher independently selected the papers with adherence to the topic of the research.

RESULTS AND DISCUSSION In the research phase, we found 1,943 papers. In the analysis and selection phase, we extrapolated 84 papers (Table 2). The journals with the highest rates of relevant papers are Public Administration (11 papers), Non-profit and Voluntary Sector Quarterly (10 papers) and Governance (8 papers) among the journals specific to Public Sector Management. The journals with the highest rates of relevant papers in the Organization area are Leadership Quarterly (13 papers) and Human Relations (7 papers). Finally, referring to collateral journals in international management studies and journals specific to the management and strategy area it is important to underline that the number of relevant papers is obviously much lower: we found the largest number of papers in the Journal of Management and Governance (4 papers). Moreover, we include to the relevant papers found during the phase of analysis some additional papers (10 in numbers) that were identified via cross-referencing and that are cited more than five times in the extrapolated 84 papers.

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Table 2. Disciplinary Area Public sector management

Management and strategy

Organization

Total

Results of Research and Analysis. Journals

Governance Health Care Management Review Health Policy Health Policy Planning Journal of Policy Analysis and Management Journal of Public Administration Research and Theory Journal of Social Policy Non-profit and Voluntary Sector Quarterly Philosophy Public Affairs Public Administration Public Administration Review Social Science & Medicine Value in Health Academy of Management Journal Academy of Management Review Administrative Science Quarterly Corporate Governance: An International Review Journal of Management and Governance Journal of Management Studies Group & Organization Management Human Relations Human Resource Management (US) Journal of Management Journal of Organizational Behaviour Leadership Quarterly Organization Organization Science Organization Studies Organizational Behaviour and Human Decision Organizational Research Methods Strategic Organization

Number of Selected Articles 8
3
1 4
8
11 4 4
2 2
2 4 1 3 7


13
3 3

1 84

Starting from a previous study conducted by some of the authors (Hinna et al., 2010), we try to better qualify the behavioural contribution to the field, verifying which contents are the most investigated. As indicated in the Research Method section, we identified the most important behavioural features investigated in our literature review, using the following

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four dimensions: board members, interactions, structures and leadership, decision-making culture. Some of the papers are borderline among two or more dimensions and they do not present a ‘principal’ investigated dimension.

Board Members In the overall picture of public sector governance literature board composition is usually defined in terms of the elements that can positively or negatively influence the capabilities of board to carry out it tasks, as numbers of board members, the ratio insider
outsider and members characteristics. A large number of studies analysed relationship between board characteristics (such as board demographics) and firm performance without finding any clear and consistent result (e.g. Dalton & Daily, 1998; Dalton et al., 1999; Johnson, Daily, & Ellstrand, 1996). Except for few studies that moving from resource dependence theories investigate the importance of Board Diversity for Stakeholder and, finally, for collaborative performance of public sector organizations (Gazley, Chang, & Bingham, 2010), most of the public sector literature on ‘board members’ is typically descriptive (i.e. Greer & Hoggett, 2000; Siciliano, 2002; West & Durant, 2000) and the authors do not give evidence of the potential relations between individuals differences and group (board) performance. As we already said before, the failure of board demographic characteristics to predict board or company’s performance is also consistent with corporate governance literature (Dalton & Daily, 1998; Johnson et al., 1996). Then, as it happened in private sector (Finkelstein & Mooney, 2003; Forbes & Milliken, 1999; McNulty & Pettigrew, 1999; Pettigrew, 1992), also in public sector governance studies failure in demographic analysis, having an impact on the scholars interest to board behavioural aspects, rather than to board composition and structure. Indeed, in the last few years
and therefore in comparison to our previous study (Hinna et al., 2010)
we register an increasing interest of the public sector literature to investigate the board members’ individual characteristics and differences as significant determinants of the overall board performance. In this frame, we found that the behavioural blocks we have individuated are linked both to input variables and behavioural outcomes, comprehending different aspects related to board members individual variables. In particular, the background of each board member
in terms of knowledge, experiences and skills
has been studied as a relevant topic for

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understanding the individual contributions to board performance as a group, Balduck, Van Rossem, and Buelens (2010), for instance, showed that outstanding performing board should specify cognitive, emotional intelligence and social intelligence competencies, while Suarez (2010) looking at leadership issues and career paths for executives suggest that substantive experience and dedication to the company sector constitute primary pathways to individual leadership. Even in Veronesi, Kirkpatrick, and Vallascas (2012) the concept of board member expertise is considered as a key factor in order to get a better performance. The authors focus on the relationship between clinical board membership and performance in the context of NHS trust hospitals and their analysis underlines how the number of clinicians included in boards is still low, even if the impact of clinician board members looks like relevant. Moreover, our literature review shows that the most recent contributions focus to both the human and the social capital of boards, addressing topics the are mostly related to the members tendency to ‘use’ their competence in boardroom. For instance, Brown, Hillman, and Okun (2012) analyse board member’s experience and background in conjunction with their training, commitment and sense of community with other board members, as important dimensions to increase directors’ confidence and participation in the organization monitoring and resource provision. In contrast with this renewed interest on board members competences, their selection method and process is still a neglected area of study in public sector boards. Except for Flinders, Matthews, and Eason (2012)
which have conducted a specific research in the UK public sector demonstrating that the capacity of political actors to make appointments to public boards offers an ‘as yet unrealized democratic potential by offering more opportunities for social engagement and participation in public governance’
we did not find recent studies on board members selection processes. This is an unexpected result since the importance of transparent- and merit-based board members’ selection processes are also strongly requested by national (i.e. CPA, 2009) and international governance guidelines (i.e. Organization for Economic Cooperation and Development (OECD), 1999). This is also not consistent with the traditional corporate governance debate, where we find an extensive and not so recent discussion (i.e. Hermalin & Weisbach, 1991). Furthermore, also variables as compensation and incentives issues have not received considerable attention in literature. In our work we found some scholars (i.e. Bearfield, 2006, 2009; Gazley et al., 2010) reflecting upon community members might need greater incentives to participate in

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board service, as this topic is worthy of continued discussion among practitioners and scholars, but we did not find specific researches on board members compensation and incentives and their role in motivating board members behaviours. So, the importance of monetary compensation is addressed as an importance incentive for entry into the board. Flinders et al. (2012), for instance, evidence the key importance of incentives. If elected politicians want to encourage people to take part on public sector governing bodies, since board members typically receive basic payment for their service, far below what most board members could request in the private sector. Anyway, incentives for entry into the boardroom are of course something different from designing incentives to push board members to make optimal contributions to the board as group (Blair & Stout, 2001). Moreover, since the individual appraisal systems and, therefore, individual incentives are also at the core of both the New public management and Public governance reforms (Fields, 2007; Goodstein et al., 1994), we consider the lack of research in this topic quite relevant. This gap, in fact, can be only partially filled by the already mentioned studies (Brown et al., 2012) on other social capital characteristics that can explain the degree to which board members engage in board functions (Hillman & Dalziel, 2003), since this literature originally comes from nonprofit organizations literature and may be only partially applicable to organizations of a pure public nature, typically characterized by different content values.

Interactions As we already said, the second dimension of analysis is related to board members interactions outside and inside the boardroom, considering those variables
such as power and trust
that can influence board dynamics. In this regard, our review of the literature shows that most of the authors focused on the analysis of the interactions between board members, the top management team and various other actors outside the boardroom (Pettigrew, 1992). Specifically, the relationship between the board of directors and their external stakeholders is in many ways linked to the multiperspective analysis adopted by the authors dealing with boards in public administration. In particular, referring to the classification advanced by Cornforth over a decade ago (Cornforth, 2003 pp. 7
11), there are six models of governance perspective in public sector literature (see Table 3). Then, the adoption of different perspectives of analysis leads the authors to

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Table 3. Theory Agency theory

Stewardship theory

Democratic perspective Stakeholder theory

Theoretical Perspectives on Governance.

Interests Owners and managers have different interests Owners and managers share interests Members/the public contain different interests Stakeholders have different interests

Source: Cornforth (2003, p. 13).

Owners’ representatives

Experts

Lay representatives

Stakeholder representatives: elected or appointed by stakeholder groups Chosen for influence with key stakeholders Owners’ representatives

Board Role Compliance/conformance: safeguard owners’ interests oversee management check compliance Improve performance: add value to top decisions/strategy partner/support management Political: represent constituents/members reconcile conflicts make policy control executive Balancing stakeholder needs: balance stakeholder needs/make policy/strategy control management Boundary spanning: secure resources maintain stakeholder relations being external perspective Largely symbolic: ratify decisions give legitimacy managers have real power

Model Compliance model Partnership model Democratic model Stakeholder model Co-option model ‘Rubberstamp’ model

ALESSANDRO HINNA ET AL.

Resource Stakeholders and dependency theory organization have different interests Managerial Owners and managers hegemony theory have different interests

Board Members

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the definition of a different board roles in public administration and, therefore, indirectly, to a different shape and nature of the relationship between the boards and their external stakeholders. Referring then to a perspective of ‘agency’ type some authors discuss the role and therefore the conditions for an effective control over the management (Benz & Frey, 2007; Cornforth & Edwards, 1999; Cuervo & Villalonga, 2000; Farrell, 2005; West & Durant, 2000). Others, however, nearly moving their arguments from the perspective of ‘stewardship’ type, try to highlight the role of support that the board should take in relation to the administration, to improve its performance (Farrell, 2005; Greer & Hoggett, 2000; Skelcher, Mathur, & Smith, 2005). There is, then, a group of scholars who, instead, moving from the importance of protecting legitimate interests expressed by stakeholders, discuss the conditions under which those interests can be effectively protected (Flinders, 2004; Klijn & Skelcher, 2007; Nestor, 2005; Oldersma, Janzen-Marquard, & Portegijs, 1999; West & Durant, 2000). Of course, at this first level of analysis, it is interesting to note that in the public sector
in comparison to what happens in the private sector (Huse, 2007)
the agency theory is not a unique or dominant analytical perspective. Indeed, we can observe that the relation between boards and management and, more in general, between politics and administration is generally studied from a democratic perspective, according to which the boards have to represent the interests of stakeholders organizations serves, to resolve or choose between the interests of different groups of stakeholders, to set the overall policy of the organization, which can be implemented by administrators, to hold staff to account the implementation and, finally, to be publicly account for the organization as a whole. According to that, if from the one hand the stakeholders and democratic perspective are adopted by most of the studies in public governance, on the other there are scholars (Benz & Frey, 2007; Farrell, 2005; Fields, 2007; Gnan, Hinna, Monteduro, & Scarozza, 2011) highlighting the importance of a deeper analysis of interactions between board and management in the contingency of innovation times, in order to better match the complexity of the organizational change. On this stream of research, Benz and Frey open the discussion to combine the agency perspective with the stakeholder one in defining boards’ roles. In their opinion, the public governance approach differs in its ideas and research implications from corporate governance theories (Benz & Frey, 2007). This applies, first, to agency theory: corporate governance mechanisms have to be introduced for containing and disciplining the

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managerial self-interest. The public governance approach is similar to agency theory when it stresses the need to find ways to control selfinterested managers’ behaviour (Benz & Frey, 2007). At the same time, public governance literature, more than the corporate governance one, goes far beyond the focus on the internal management of the firm, adopting the stakeholder theory. In fact, as Fields (2007) reveals boards may be best able to protect stakeholders by pressing management to undertake changes requested from the external environment (i.e. public sector reforms). As a consequence, this ‘extended’ boards’ role asks for a participation to the formulation and the decision on strategic change that may help public organizations to adapt to important environment changes. On this side, an interesting work is the one by Reid and Turbide (2012), with an interesting contribution to the discussion of board interaction in the context of organizational crises. The authors come to the result that the underlying dynamics of trust/distrust and control/collaboration appear to explain change from one stage to another in these crisis scenarios, providing some understanding of how boards and managers might consider developing their relationships so as to better control the disruptive effects of a crisis. In sum, considering the board external relationship, scholars usually describe a set of boards tasks expectations and, therefore, a set of type of interactions with external stakeholders, the literature did not go into individual and group behaviour dimensions. On this side there are very rare exceptions. For instance, Gabris, Golembiewski, and Ihrke (2000) explore the association between administrative leadership, elected board behaviour and administrative innovation at the municipal level. In particular, in their study leadership credibility is strongly associated with regenerative interaction between the staff and the elected board, and it seems also to be connected with higher levels of intergroup trust, openness, risk taking and owning. With their study they clearly show the importance to investigate the antecedents or consequences of power, trust or together sources of influences that can characterize and then shape interactions both outside and inside the boardroom. Still with reference to what may determine the form and nature of the relationship between the board and external stakeholders is also interesting to note that some antecedents are endogenous. On this regard, for instance, Jonnergard and Stafsudd (2011) notice that when board roles and activities do change, it may either be done through the initiative of the top management team or the board of directors. In cases when behaviour is changed through the initiative of directors, they may either be due to the composition of the board having changed. The same was also observed recently by Pettersen, Nyland, and Kaarboe (2012)

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in their study about hospital boards in Norway, observing that when politicians were included in the boards in 2006, the politicians and the employees constituted a majority in the boards, and the roles of the hospital boards were changing towards the stakeholder perspective. However, all these studies continue to have as the main observation point external relations to the boardroom, but not internal ones. This obviously surprised and, at the same time, sets a clear research gap to be bridged if academic scholars really intend to investigate the relationship between board behaviour and organizational performance. This is even truer if we look at the results gathered from the first attempts to analyse the interpersonal dynamics within board meetings. In this context, it is certainly important that the contribution of Brown (2005) exploring the association between board and organizational performance, where the board interpersonal dimension provided a unique explanation of judgments of organizational performance. Indeed, this result is also consistent with the governance literature in both the private (Bainbridge, 2002) and nonprofit sector (Zander, 1993).

Structures and Leadership As might be expected that the reflections just taken place on the subject of internal board interaction, the elements which constrain or empower actions and behaviours within the boardroom are less investigated in the literature. As others (Westphal & Zajac, 2013) already observed, this is undoubtedly an important landmark in the research on board behaviours, both in public and private sectors, since scholars have poorly investigated the board at the group-level processes. Typically, reflecting the importance of democratic and stakeholder perspective in public sector literature, a certain number of authors reflect on the important role that the collaboration between civil society and public companies can play in evolving the relationship between public agents and citizen, with consequences on the responsibility that public managers have towards civil society. About norms related to the interactions outside the boardroom, Smith, Mathur, and Skelcher (2006) analysed the implications for democratic practice of collaborative working through partnership arrangements in the public sector. The authors tried to find what happens when government, business and civil society work together and found that partnerships are flexible management tools, but exhibit a democratic deficit in terms of the rules and procedures of public governance when measured

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against a benchmark of elected local government. Similarly, Callaghan and Wistow (2006) conducted an empirical research in the British National Health Service to understand the ways and approaches boards were beginning to involve patients and the public in decision-making. How do public bodies define or constitute the public that they wish to engage? What notions of representation or representativeness do participants of public bodies bring to the idea of legitimate membership of such bodies? How do deliberative bodies contribute to processes of social inclusion and exclusion? These are also the main questions that Barnes and colleagues (2003) aimed to address ten years ago. Moving from rules and norms that frame the board external relations to those inside the boardroom, even in public sector literature the leadership aspects have been addressed, even if with different meaning and perspectives in comparison to corporate governance debate (Dalton & Daily, 1998). For instance, several papers selected from Leadership Quarterly interpret the concept of leadership in the traditional organizational behaviour meaning. For example, Bess and Goldman (2001) refer to five well-known theoretical approaches to leadership (situational, charismatic, transformational, path
goal and leader
member exchange) that may be considered as typical in the organizational domain and all of them refer to an idea of leadership that implies the study of the relationship and influence among leaders and followers. This idea and conceptualization of leadership is quite different from corporate governance traditional studies on board (Huse, 2007), where scholars refer more to a formal line of authority that distinguishes leaders. On the other hand, closer to this frame of analysis, Firth, Wong, and Yang (2012) identified the concept of board leadership structure with the idea of CEO duality, focusing on how it affects the corporate governance of corporatized state-owned firms. In their paper they refer to the concept adopting the agency theory framework and arguing that the power generated by CEO duality tends to pose a negative effect on the corporate governance of private firms (Firth et al., 2012). In particular, focusing on leadership in public governance domain, Firth et al. (2012) suggest that CEO duality might entrench marginally performing CEOs and thus impose a negative impact on the corporate governance of these firms. On the other hand, CEO duality might positively contribute to the corporate governance of Corporatized State-Owned Enterprises (CSOEs) by protecting well performing CEOs from non-value enhancing turnovers. In general terms, from the literature review what clearly emerges is that the idea of leadership may assume different meaning could be interpreted in diverse way and imply different consequences, but in the

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‘structural’ approach, scholars tend to interpret leadership as a power issue and are interested in understanding if it will have positive or negative consequences in terms of governance (Firth et al., 2012).

Decision-Making The last dimension is about decision-making through the use of competences, cohesiveness, cognitive conflict, process-oriented boardroom culture and groupthink. We found that selection procedures of board members, as board size and board composition, can influence the degree to which the institution board members can work together and reach consensus (Grissom, 2009). In comparison with corporate governance debate, part of the literature emphasizes the importance of board composition also for its reflection on the tension between culture and politics. According to Abolafia (2010) most policy groups, whether they are boards, are typified by their cultural homogeneity, having similar training, similar organizational socialization, and a shared sense of what actions are institutionally legitimate in their policy environment. But, even if all these cultural factors are a force for integration, board members are also influenced by the different schools of economic thought, as by different stakeholders interest. Therefore, board composition might be also considered as an important antecedent of both emotional and cognitive conflicts in the boardroom. The evidence shows, in fact, that boards composed by professional figures and political members encounter difficulties in taking professional oriented decisions when these decisions conflict with those of powerful political interests able to exert pressure on the political process (Bordeaux, 2007), thus influencing board task performance. This is also shown in other works, in which it is argued that new public management should assure to stakeholder that the public sector is in capable and honest hands, avoiding negative assumptions related to bureaucracy and tight control, to achieve prefixed and improved targets (Greer & Hoggett, 2000). In this frame, Grissom (2009) examines the influence of extrinsic and intrinsic factors on decision-making conflict on governing boards in public organizations. Using survey data from more than 700 school board members in California, he found that conflict among board members, whose capacity for making effective decisions plays an important role in the success of organizational outcomes, is a function of both external and internal factors, including board size and selection procedures, member characteristics and the environment in which the board operates.

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Some works try to compare board tasks in public and private companies and find that one of the principal difference stays in the fact that public boards includes non-executive directors who are part-time and have no managerial duties. Their role is to provide wider views in terms of the strategy, in that way undertaking their governor responsibilities (Farrell, 2005). Obviously, public sector has some different prerogatives respect to private sector, due to the public interest in how public resources are managed and invested; so, as shown before, the role covered by stakeholders in this sector should have more importance in the process set-up by public companies. This important role is shown, for instance, by Tenbensel, Cumming, Ashton, and Barnett (2008). This study conducted upon local districts for health system (District Health Boards, DHB) in New Zealand has shown the importance of stakeholder involvement in public process. Strategic planning at the DHB level was the key mechanism by which central government population health objectives would be translated into local action. Tenbensel et al. demonstrated that in DHB it is strong the will to engage in strategic decision-making processes to enhance population health but it is difficult to find the ‘way’ because of the priorities and requirements of central government and the weight of institutional history. These factors were found to be the most influential on DHB decision-making and practice, where flexibility and innovation are only exercised at the margins; but anyway the study has shown that the involvement of local communities, particularly those representing relatively disadvantaged groups with high health needs, has been seen as an essential element of local approaches to improving population health. In sum, our work findings show the strong link within investigated input variables, within behavioural outcomes and among them, and it is clear that board behaviour, such as board composition, highly influences the outcomes and so board performance.

FINAL REMARKS The first data to underline is the increasing production on the theoretical issues related to the behavioural perspective. In fact, the number of papers identified since 2009
2012 is 40% of the total amount of our database. The most relevant part of these contributions addresses the theoretical dimensions of the board member’s characteristics and of structural leadership.

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Second, we have seen that just a few amount of papers deals with all the four dimensions defining Huse’s model, while it was difficult to classify all the papers in the Huse’s matrix (Fig. 2). In fact, in several cases the matrix adopts a theoretical perspective focused on governance issues, and some theoretical dimensions of the matrix are not coherent with the categories adopted within organizational behaviour domain. Our results show that the articles from general management and organizational behaviour journals present leadership as a personal and relational characteristic, whereas the contribution published in corporate governance journal shares the structural idea of leadership. In this sense including in the corporate governance debate these leaderships’ features and theoretical perspectives, it is expedient to frame new topics in the board behaviour research. In line with this consideration, through the analysis of the papers put into the different boxes, we noticed a further interesting remark related to the inclusion in the same boxes of elements that belong to different levels of analysis. For example, in her paper entitled ‘Confiict, Accommodation, and Bargaining: The Implications of Using Politically Buffered Institutions for Contentious Decision Making’, Bordeaux (2007), in coherence with the Huse’s matrix, adopts the concept of conflict as a useful variable to interpret decisionmaking processes and dynamics. In her conclusions, the author argues that many public authorities are created to protect professional decision-making from political influence, but as a result, they had few resources to bargain in the political process. Again we face to a struggle between a perspective where conflict is view as a political arena where actors could play in different way (Bordeaux, 2007) and the stream of research coming from general management, where the issue of the conflict (in particular inside a group) is typically interpreted as a process involving two or more parties and has a clear interpersonal dimension made of interactions. So, we may underline a first interesting result in terms of definition of the main categories of analysis. In fact, adopting a more organizational approach some of these categories are not coherent and should be reclassified, generating a different matrix. In this step of the research just a suggestion could design the matrix defining two different dichotomies: (1) the first one represented by an individual versus collective (group and organization) level of analysis and (2) the second one related to the structural dimension (static) versus interaction (dynamic). A final remarkable aspect that stems from our analysis is the prevalence of qualitative methods. This evidence is coherent with McNulty (2013) who

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provide an overview of published qualitative research in the field of corporate governance based on a structured literature search of papers published in scholarly peer-reviewed journals between 1986 and 2011, showing the prevalence of qualitative studies in corporate governance. Agreeing with McNulty (2013), we think that even in the public arena there is a need for more qualitative studies of significant rigour and relevance which explore the array of interactions and processes involved in corporate governance. Finally, future research is needed to investigate intra and inter-board relationships focusing on viable mechanism through which executives can affect board member performance. As stated by Brown et al. (2012) additional research considering group dynamics such as group norms and leadership style could provide more significant insights into the practices of individual board members and the performance of governing boards.

NOTE 1. Accademia Italiana di Economia Aziendale is the Italian Academy of Business Administration and Management.

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GOVERNING PUBLIC VALUE: HOW TO FOSTER KNOWLEDGEINTENSIVE COLLABORATION IN THE PUBLIC SECTOR$ Miche`le Morner and Manuel Misgeld ABSTRACT Purpose
The chapter aims to conceptually explore how to govern public sector organizations in order to create public value. It focuses on the importance of knowledge-intensive processes in creating public value as well as the challenges in governing such fragile processes. Methodology
We use organizational theory and respective concepts in the field of organizational design focusing on cognitive and motivational aspects. These are explained by group theories and concepts of conditional cooperation.

$

This paper was presented in the track 24 (Leading Public Sector Organizations in the New Era: Challenges in Governance Systems, Mechanisms and Roles) at the Seventeenth Annual Conference of the International Research Society for Public Management (IRSPM XVII), 10
12 April 2013, Prague.

Mechanisms, Roles and Consequences of Governance: Emerging Issues Studies in Public and Non-Profit Governance, Volume 2, 41
57 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-663020140000002000

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Findings
We show the important role and the antecedents of selfgovernance in creating public value based on knowledge creation, sharing and use, whereas the classical method of hierarchical and bureaucratic procedural-based governance (via rules and direct supervision) as well as the more modern method of output-based governance (via so-called key performance indicators) fails to govern public value in this form. Research limitations/implications
The heuristic model differentiates between modes of governance. Their mutual interplay and empirical evidence are yet needed for substantiating the findings. Practical implications
Self-organizing mechanisms require behavioural antecedents of the involved actors: on the one hand there is a need for a minimum of mutual understanding in the sense of ‘cognitive compatibility’ and on the other, a minimum of ‘willingness to cooperate’. Social implications
Participating public employees and citizens need to cultivate participatory and collaborative governance mechanisms in order to create public value. These can be understood as supplementing and enriching existing ones rather than replacing them. Originality/value of the paper
This chapter contributes to research in public administration in that the concept of public value with a focus on knowledge-intensive collaboration is specified. A new path is taken, originating from organizational theory and motivational theory that are transferred into public administration in order to show how collaborative governance should be employed and how motivational and cognitive aspects should be considered. Keywords: Public value; organizational theory; knowledge-intensive collaboration; self-organizing; conceptual paper

INTRODUCTION The concept of public value coined by Moore (1995) has drawn increasing attention in public management research, particularly including collaborative or new public governance (e.g. Agranoff, 2006; Alford & Hughes, 2008; Bao, Wang, Larsen, & Morgan, 2013; Bovaird & Loeffler, 2012; Gnan, Hinna, & Scarozza, 2013; Greve, 2013), though its foundation is not new. Roots of public value can be traced back as far as the state’s philosophy

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on the ‘bonum commune’ in ancient Rome (Franz, 2013, pp. 189, 190). It focuses on creating value for the respective actors as well as for the collective, and thus supplants the image of a citizen as being a mere customer (Stoker, 2006, p. 56). Advocates underline the current importance of the public sector’s value orientation, notably by pointing at the deficiencies of new public management. Accordingly, the state is obliged to concentrate on how to improve general prosperity by producing (common) goods adherent to public values, instead of relying solely on measuring financial efficiency or customers’ satisfaction (Harrison et al., 2012; O’Flynn, 2007). But how can this be accomplished? In the following we show that common knowledge creation, transfer and use between different actors in particular are nowadays crucial for creating public value. On the one hand, these processes allow for much greater value creation than can be achieved by one actor alone, for example, the government, and on the other, they form the basis for all kinds of value creation. Since knowledge-intensive collaboration requires contributions by different actors who are not always willing or capable to contribute, it is not easy to achieve. This is especially true if the creation of public value does not immediately produce an advantage for the contributing individuals. In this case, the collective rationality contradicts the individual rationality and individual contributing becomes unlikely; a social dilemma then emerges. In order to cope with these social dilemmas, a specific form of governance becomes necessary. Classical authority-based governance mechanisms and more modern output-based price mechanisms tend to fail because knowledge sharing is difficult to enforce and measure. We show that it must be supplanted or complemented by self-governance, where participants coordinate themselves decentrally. Accordingly, several authors have already pronounced that public value creation with a focus on stakeholders’ involvement requires participatory and collaborative governance mechanisms (e.g. Meynhardt, 2009). This is in line with the view of the responsive, citizen-centred state playing a facilitating and enabling role. However, the main focus of discussions so far has been on who should be responsible for creating public value rather than how it can be organized. In order to fill this research gap we refer to organizational theory and show how and under which circumstances knowledgeintensive collaboration can be governed (Frost & Morner, 2010; Grandori, 2001). The mode of self-governance in particular is very demanding with regard to necessary antecedents. Referring to respective concepts in the field of organizational design, as well as in psychological motivation and cognition theory, we show that cognitive capabilities and

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motivational aspects are crucial variables here: on the one hand there is a need for a minimum degree of mutual understanding in the sense of ‘cognitive compatibility’ (Morner, Renger, & Valle Thiele, 2010) and on the other a minimum amount of ‘willingness to cooperate’. Both behavioural antecedents are not easy to create but are indispensable for functioning self-governance to create public value. In the following we first illustrate the crucial role of knowledge-intensive cooperation in creating public value in the section “The Role of Knowledge-Intensive Collaboration in Public Value Creation”. Second, we show in “Governing Mechanisms for Fostering Knowledge-Intensive Collaboration” that neither the classical method of hierarchical proceduralbased governance (via rules and direct supervision) nor the more modern method of output-based governance (via so-called key performance indicators) are sufficient for governing public value based on knowledge-intensive collaboration. Rather, knowledge-intensive collaboration needs a certain amount of participation and communication, and thus governance has to be supplemented by self-organizing mechanisms that involve the public. We further show in “The Role of Cognition and the Motivation of Involved Actors in Self-Governance Towards Public Value” that the functioning of self-organizing mechanisms is dependent on cognitive and motivational aspects of the involved actors: on the one hand there is a need for a minimum of mutual understanding in the sense of ‘cognitive compatibility’ and on the other hand a minimum of ‘willingness to cooperate’. Finally, we end with a short conclusion and implications for practice and further research.

THE ROLE OF KNOWLEDGE-INTENSIVE COLLABORATION IN PUBLIC VALUE CREATION In order to understand the importance of knowledge-intensive processes and citizen involvement in creating public value, a closer look at the basics of public value creation is essential: public value is not an absolute term; it is dependent on the context and its respective circumstances as well as the subjective perspective of those concerned (Alford & O’Flynn, 2009; Beck Jørgensen & Vrangbæk, 2011). Accordingly, Moore describes public value as ‘rooted in the nature of the desires and perceptions of individuals’ (1995, p. 52). It is a ‘conception, explicit or implicit, distinctive of an individual or group, of the desirable which influences the selection from available modes, means and ends of action’ (Kluckhohn, 1962, p. 395). According to this

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view, the definition of public value remains vague as it is founded on a relativist perspective; it may be everything and nothing. On the other hand, attempts to help public managers in searching for public values have been made, adapting and refining the original concept by an empirical approach: taxonomies can be found in which values are clustered and connected holistically. Insofar, societal and democratic values are included as well as values connected to the environment and service quality, efficiency and effectiveness as in a results-based management (e.g. Beck Jørgensen & Bozeman, 2007). Accordingly, government is encouraged to concentrate on how to improve the common weal by satisfying public needs and facing social problems adherent to what the public values. It needs to focus on identifying social needs, preferences and values of citizens. This includes an active involvement of citizens who articulate their preferences of ‘the public’. Additionally, public learning and knowledge processes are crucial in discursive and joint decision-making as stakeholders need to understand how to participate and which issues need to be dealt with (e.g. Stoker, 2006). We do not wish to join a debate on constructivism versus positivism but refer instead to a more general definition of public value, which gives us the opportunity to specify it for our means and therefore be more precise when talking about how to foster and govern it. Thus our starting point is a very broad definition of public value as the improvement of the common welfare by producing (common) goods valuable for the public
instead of relying solely on measuring financial efficiency or customers’ satisfaction (Harrison et al., 2012; O’Flynn, 2007). But how can this be accomplished? In order to answer this question we specify the definition by referring to the knowledge-based view and later enhance it with the theory of public goods. The knowledge-based view (e.g. Szulanski, 1996) was originally developed to explain the long-term survivability of organizations, but
from our point of view
fits well with the current situation in knowledge-based societies. The knowledge-based view shifts the focus of attention from how value is appropriated to how value can be created (Nahapiet & Ghoshal, 1998). It states that the most valuable (common) goods supporting the long-term sustainability of organizations and networks of organizations are knowledge-intensive resources. Their specific potential lies at first in their non-rivalry of consumption: they can be used several times without losing their value (Frost & Morner, 2005). Second, the processes by which they are created, transferred and (re-)used usually involve different persons and interdependencies and cannot be easily established or imitated. Nevertheless, these processes are crucial in order to be able to cope with

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complex and changing environments (Grant, 1996; Szulanski, 2003). Third, the potential of knowledge-intensive resources builds the basis for value creation of all kinds (embracing the capability to continuously generate new processes, services and goods which are able to produce public value) and includes but does not limit the perspective to financial aspects (Frost & Morner, 2010). We believe this perspective can help specify the definition of public value creation since nowadays in a knowledge-based society, the mastering of complex or ambiguous tasks in a rapidly changing, interdependent environment requires common problem-solving from different angles and the transfer and use of existing expertise, whereas elected or appointed officials operating in interconnected and interwoven spheres are unable to independently solve current ‘wicked problems’ characterized by complex interdependencies. Especially for services such as health and education or in policy making, co-creation and the involvement of users or citizens is necessary or inevitable. From this point of view, the common creation, transfer and use of public and civic knowledge (Galston, 2007), plays a crucial role for public value. Accordingly, a critical task for public managers and politicians is to effectively manage information processes and decision-making in a knowledge-intensive work setting that involves a multitude of agents. The common creation of knowledge and its transfer from one agent to another as well as its internalization, use, adaption and combination cultivate the existing body of knowledge and facilitate public learning (Ventriss, 1997). Whereas knowledge-intensive collaboration may be able to create immense public value, its realization is not always easy (Frost & Morner, 2005). This especially becomes the case if it does not immediately produce an advantage for the contributing individuals. In this case the collective rationality contradicts the individual rationality, and individual contributing becomes unlikely. A social dilemma then emerges (Dawes, 1980; Kollock, 1998). The latter is especially caused by the public good characteristics of knowledge, which were originally introduced by the theory of public goods (Olson, 1965; Samuelson, 1954): non-excludability and/or non-rivalry in consumption and, generally, non-measurability of individual contributions. Interestingly enough, different social dilemmas occur depending on whether knowledge is to be used, transferred or created: in the process of knowledge creation, for example, the participants who have contributed to commonly developing the new knowledge cannot be excluded from it. Thus, individual rationality would imply making use of the knowledge but contributing to it as little as possible
which implies a social dilemma of under-supply, also called ‘free-riding’. Knowledge transfer only implies

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a social dilemma if the knowledge is excludable. This is the case with expert knowledge: the respective experts have no incentive to reveal their expertise and tend to exclude others, causing the social dilemma of under-use. Knowledge use only becomes a problem if the knowledge is non-excludable but rivalling. This is precisely the case when knowledge-intensive resources that are bound to persons or machines are used, since these persons or machines cannot be used by others simultaneously, thus creating the social dilemma of over-use. As we have already learned from political economy (Hardin, 1968; Olson, 1965; Ostrom, 1990), coping with these social dilemmas depends on a specific way of governance.

GOVERNING MECHANISMS FOR FOSTERING KNOWLEDGE-INTENSIVE COLLABORATION How to effectively coordinate activities in collaborative settings and secure common goals is a central question of governance (Grandori, 1997) and organizational control (Eisenhardt, 1985; Ouchi, 1980). It is about coordinating interdependences among various agents, and taking into consideration their roles, responsibilities and accountabilities in order to create value for the overall organization (Frost & Morner, 2011, p. 22). In the context of public values, governance can be understood as steering the ‘process that influences decisions and actions within the private, public, and civic sectors’ (O’Leary, Gerard, & Bingham, 2006, p. 7). In principle, three governance modes can be differentiated which are not all suited in the same manner to governing knowledge-intensive collaboration: authority- or procedural-based governance, including direct supervision and rules; output-based governance, including steering by financial numbers; and self-governance, including negotiation, mutual consent and clan-control of participating actors. All three different modes require different antecedents to function.

Weberian Authority and Procedural-Based Governance Public administration is traditionally dominated by procedural-based governance in the sense of Weberian authority: direct supervision or general rules (Weber, 1922). The latter specify the appropriate behaviour in which public employees and/or citizens must engage. Standardized and repetitive

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work tasks, the predictable careers of public employees and equitable treatment by the rule-of-law traditionally characterize this mode of governance. Procedural-based governance implies a high level of understanding and judgeability by those who supervise or establish and enforce the rules (Ouchi, 1980). Otherwise it would not be possible to supervise correctly or establish the right rules and ensure compliance. Thus, if public managers have recognized the experience and expertise of the respective processes and interactions, they should be able to adequately judge knowledgeintensive collaboration (Frost & Morner, 2010). This, however results in the danger that the expertise of the experts and technocrats may be emphasized to such an extent that the knowledge seems ‘objective’. In this case, participatory policy- and decision-making are marginalized (Nabatchi, 2010), with less room left for creativity, discursive democracy and public learning. Very often in the case of knowledge creation, public managers aren’t included in the process and are unable to judge it. In this case, authority- or procedural-based governance fails to foster knowledgeintensive collaboration, and public managers have to encourage citizens and/or employees to collaboratively create knowledge without engaging in patronizing or meddling behaviour.

New Public Management and Output-Based Governance In recent years, following the arrival of ‘new public management’, public administration has complemented authority- and procedural-based governance with output-based governance. The aim has been to ‘dismantle the bureaucratic pillar of the Weberian model of traditional public administration’ (Stoker, 2006, p. 45). Citizens become clients, and for their sake public administration should become more effective in providing public services and improving performance while simultaneously saving money. New public management is based on output-measures, that is, prices that give incentives according to the behaviour of (public or private) individuals. The latter decides autonomously about input, transformation processes and their related behaviour, whereas their clients decide whether to make use of the related output or not. It is essentially the price of the good or service that counts (Merchant, 1985, 1989; Ouchi, 1979; Stoker, 2006). Output-based governance mechanisms are only suited to governing knowledge-intensive collaboration if the knowledge is encapsulated in services and goods which can be transacted according to valid prices.

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Otherwise output-based governance fails because of the public good characteristics of knowledge
as described above. Where there is nonexcludability and/or non-rivalry in consumption, prices ‘lie’, that is, they give false signals about the contributions and consumptions of participants and their real value, thus ‘confounding the communication between consumers and producers’ (Donahue, 1991, p. 18). This is the case since the respective contributions are vague or untraceable and cannot be measured or easily evaluated. Therefore, non-cooperative behaviour or underperforming is difficult to sanction and it becomes individually rational for utility-maximizing team members to reduce their effort and deny cooperation. Thus, output-based mechanisms are unable to control individual performance in knowledge-intensive teamwork. This results in the already described social dilemmas such as over-use, under-use and under-supply; individual rationality (e.g. that of the freerider who consumes without contributing) and collective rationality (e.g. efficient and fair resource allocation to reach public value) contradict each other.

Public Value Management and Self-Governance When fostering public value creation based on knowledge-intensive collaboration, public managers can neither solely rely on classical authoritybased procedural mechanisms nor on output control by measuring financial efficiency or the quality of goods and services (Harrison et al., 2012; O’Flynn, 2007). The reason is that collaboration between involved actors can seldom be centrally forced and rarely decentrally measured. Accordingly, several authors have already pronounced that public value creation with a focus on stakeholders’ involvement requires participatory and collaborative governance mechanisms (e.g. Meynhardt, 2009). In contrast to authority, procedural and output-based mechanisms, self-governance relies on subtle forms of control that can also be found in socialization processes (on a societal or political level) or in professions (on a sectoral level). There is no clearly defined authority, but instead decentralized, mutual persuasion (Adler, 2001; Kirsch, 1996). Agents involved coordinate their behaviour decentrally without exogenous interference by negotiating their possibly opposing interests and different views, ideally ending up with common consent (Elster, 1998; Nabatchi, 2010; Romme, 1996). Self-governance in public administration would mean that public action is decided upon and controlled in a deliberatively joint manner between

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partially autonomous organizations and/or individuals, leading to a new governance style in order to provide the seamless services that are valued by citizens and to meet the challenges of overcoming the governance problems resulting from classical bureaucratic and output-oriented mechanisms (e.g. Alford & Hughes, 2008; Askim, Fimreite, Moseley, & Holm Pedersen, 2011; Christensen & Lægreid, 2007; O’Flynn, Vardon, Yeatman, & Carson, 2011). Not at least, the concept of public value management ‘rests on a fuller and rounder vision of humanity than does either traditional public administration or new public management’ (Stoker, 2006, p. 56).

THE ROLE OF COGNITION AND THE MOTIVATION OF INVOLVED ACTORS IN SELF-GOVERNANCE TOWARDS PUBLIC VALUE The effective use of self-governance is very demanding because multiple factors determining the extent of the involvement of citizens need to be considered (Nabatchi, 2012). If citizens, groups and organizations are incapable or unwilling to be engaged partners in the governance process, self-organization fails to create public value (Emerson, Nabatchi, & Balogh, 2011, p. 2; Morse, 2012). Referring to the organization theory in the following, we specify the two behavioural factors that enormously impact the functioning of the selfgovernance processes (Frost & Morner, 2010; Morner et al., 2010): the cognitive compatibility of the involved actors, representing their cognitive capability for mutual understanding, and their willingness to cooperate. Moreover, both factors influence each other.

The Cognitive Compatibility of the Involved Actors as a Pre-Requisite for Self-Governance Cognitive compatibility means the degree to which the cognitive patterns of the involved actors are compatible and thus they are able to understand each other. Cognitive patterns represent mental models that determine how an individual understands events, contexts and environments (Barr, Stimpert, & Huff, 1992; Rumelhart, 1980; Sims & Gioia, 1986). Whether cognitive patterns are similar or different significantly affects how collaborators and participating citizens tend to cooperate in policy and decision-making. If patterns differ because, for example, participants don’t use the same language or have

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different world views, interests and habits, they are likely to perceive, interpret and evaluate situations in diverging ways. For solving social problems, discussing policy issues or reaching joint decisions, different patterns can be seen as opportunities as well as challenges: on the one hand, conflicting interpretation schemes may result in an enriched body of knowledge and public learning. From this point of view, cognitive dissimilarities tend to broaden public employees’ or participants’ perspectives. Individuals are able to consider or to better understand various options in policy and decision-making (Eisenhardt, Kahwajy, & Bourgeois, 1997). Accordingly, new knowledge can be created by discursive decisionmaking that is fruitful if participants can contribute equally with deviating ideas, concepts and understandings. Thus, the scope and depth of the knowledge obtained can be widened, deepened or enriched, and this may lead to better solutions. With similar results, innovation research states that diverse knowledge repositories are needed so that individuals are able to recognize, assimilate and use new and relevant information and also create knowledge. For example, for public
private partnerships, a transfer of knowledge, skills and routines and also cross-boundary learning are seen as important aspects of self-organization (Kivleniece & Quelin, 2012). On the other hand, similar cognitive patterns can lead to cognitive ‘channelling’ or an ‘in-group bias’. In these cases, possible effects can include some information or decision options not being taken into consideration and simply overlooked. Because of an in-group bias, less known individuals’ contributions are undervalued and their opinions are not heard. Also, teams may become less capable of using knowledge from outside the group. Thus, being able to cooperate requires maintaining a balance between cognitive dissimilarity and similarity, between a higher novelty value and lower mutual understanding (Wuyts, Colombo, Dutta, & Nooteboom, 2004, p. 3). A certain cognitive compatibility or overlapping of cognitive patterns is therefore needed so that a shared understanding can be reached (Nooteboom, 1992, 1999) and value creation via self-governance becomes possible.

The Willingness to Cooperate of the Involved Actors as a Pre-Requisite for Self-Governance A second pre-requisite for the functioning of self-governance is that the involved actors be willing to cooperate. According to Ostrom (2000), most individuals are usually willing to cooperate under certain circumstances. The most important factor influencing willingness to cooperate is whether others

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are expected to cooperate or not. Accordingly, the will to cooperate is reciprocal in nature and individuals rate each other on how actively they intend to cooperate (or freeride) in the policy- and decision-making processes. Thus the willingness to cooperate can mutually intensify (negatively or positively) and end up in an upward or downward spiral effect (Osterloh, 2007). In a downward momentum of declining cooperation, collectively irrational or opportunistic behaviour looms large. In this situation agents tend to incorporate a conduct that is aligned to values dominated by self-interest and extrinsic motivation. This leads to a social dilemma: collaborators or participants counteract the group outcomes which they are striving for. The result may be a dead end of non-cooperation, which self-evidently is less preferred collectively and individually than a situation in which conditional cooperators show pro-social collective behaviour (Dawes, 1991; Frost & Morner, 2005; Miller, 1992; Williamson, 1985). A downward spiral can be triggered by crowding-out effects if extrinsic motivators are fostered or patterns of extrinsic motivation strengthened: collaborators or participants accordingly tend to evaluate their possible actions on how rewards can be achieved and sanctions avoided instead of satisfying the need to collaborate for its own sake. Joint action in order to follow a common interest is less likely as collaborators or participants behave competitively in the logic of self-interest, maximizing instead of cooperating (Christensen, 2005; Mooney, Holahan, & Amason, 2007). Consequently, cooperative activities that are important for decision-making, such as knowledge sharing, are impaired since decision-makers are afraid of losing their competitive advantage (Osterloh, Frost, & Frey, 2002). In settings that are dominated by extrinsic motivation, social dilemmas occur and participants or collaborators are compelled to counteract the common interest and the public good. Thus, self-organization may fail to foster public value. On the other hand, intrinsically motivated agents striving to cooperate can positively influence policy and decisionmaking processes. They can build up trust, shared motivation and commitment, which are important for a positive collaborative dynamic and even catalyse the engagement process (Ansell & Gash, 2008; Emerson et al., 2011).

Interaction of Motivational and Cognitive Aspects In order to understand how actual behaviour in public policy- and decision-making can be governed, both cognition and motivation and especially how they interplay need to be examined (e.g. Barnard, 1938; Bickhard, 2003; Foss, 2003; March & Simon, 1958). Simply put, ‘(w)hat a person wants and likes influences what he sees; what he sees influences what

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he wants and likes’ (March & Simon, 1958, p. 158). On the one hand, cognitive patterns influence motivational patterns. Thus, March and Simon (1958) argue that in decision-making processes, individually differing mental models affect how sensitive a person is to an alternative which results in weighing goals differently (Foss, 2003). Accordingly, similar cognitive patterns between individuals may help them conceive what they value with regard to ‘the public’. On the other hand, certain arrangements of preferences may influence cognitive patterns via perception and thus lead to (un-)cooperative behaviour. Depending on individual needs and values, individuals show selectively perceived information (‘you see what you want or like to see’) and apprehend cognitive similarities or dissimilarities differently (Hasdorf & Cantril, 1954). If actors are unwilling to cooperate, they potentially destroy the constructive atmosphere of cooperative behaviour and, thus, the opportunity to reduce cognitive dissimilarities via discourse, dialogue and negotiation. Conversely, a positive atmosphere with a high willingness to cooperate between participants will allow constructive dialogue and negotiation, which again will decrease cognitive dissimilarities and thus increase the ability to cooperate. This is assumed, for example, in the case of deliberation, which may help participants develop skills that further cooperative behaviour, such as the capacity to reason, to empathize, to imagine and to express individual preferences or convictions (Elster, 1998 in Nabatchi, 2010).

CONCLUSION The purpose of this paper is to conceptually explore how public sector organizations should be governed in order to create public value. In order to fulfil this purpose we first specify the notion of public value, thereby stressing the meaning of knowledge-intensive collaboration nowadays required to cope with the challenges of complex and dynamic environments. Referring to organizational theory, we further show that outputbased and authority-based procedural governance mechanisms are rarely suited to fostering public value creation based on knowledge-intensive collaboration, but instead have to be complemented with mechanisms of selfgovernance. As a consequence, public management needs to shift its focus from a hierarchical, patronizing design to one of collaboration, participation and self-governance in order to augment knowledge-intensive resources. Capabilities of public learning, cross-boundary transfer of knowledge as well as continuously generating new processes, services and goods consequently can be embraced. This is in line with the view of the

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responsive, citizen-centred state playing a facilitating and enabling role in the quest for creating public value. We further show that effective selfgovernance requires the involved actors to be motivationally willing and cognitively capable of participating in the creation of public value, which is seldom a matter of course. This behavioural approach is decisive when examining how sharing, transferring and creating knowledge and respective collaboration can lead to responsive government and empowered citizens. Our paper contributes to research in the field of public management in a twofold manner: first, we specify the concept of public value with a focus on knowledge-intensive collaboration. Second, we contribute by transferring results from organizational theory and motivational theory into public management in order to show how collaborative should be employed and how motivational and cognitive aspects should be considered. Of course, much research still needs to be carried out. We need to examine the interactions between different governance modes and how they determine the creation, sharing and use of knowledge. Their mutual interplay, whether complementing, hindering or substituting each other, needs to be analysed in more depth. Finally, empirical evidence will be very helpful in advancing our framework of governing public value.

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FINANCIAL PERFORMANCE IN INDIAN STATE-OWNED ENTERPRISES FOLLOWING CORPORATE GOVERNANCE REFORMS Stuart Locke and Geeta Duppati ABSTRACT Research question
This paper empirically examines the impact of corporate governance reforms on the financial performance of Indian state-owned enterprises (SOEs) for the period 2003–2011. Research findings/insights
The findings indicate that the various corporate governance reforms collectively exhibited a statistically significant positive impact on performance when a difference in difference estimation process is used. However, the performance of SOEs is less than that of publicly listed companies, which is consistent with prior research. When the SOEs are compared with a matched pairing of publicly listed companies of similar size and same industry, their performance was comparable and in many instances superior. This is indicative of the regulatory constraints on competitors and preferential access to resources and

Mechanisms, Roles and Consequences of Governance: Emerging Issues Studies in Public and Non-Profit Governance, Volume 2, 59
88 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-663020140000002002

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markets given to the SOEs. As SOEs move towards a more mixed ownership model with more of them listed on the stock exchange and greater public ownership of shares the corporate governance issues will increase in importance. Theoretical/academic implications
The controlled sell down of shares in SOEs presents a need for continuing governance reforms and ongoing research to track progress. Practitioner/policy implications
The most striking observation from the study is that changes that were introduced as a corporate governance reform, such greater professionalism in boards, did not gain traction and enhance performance, rather the process of director selection and the concentrated bureaucratic and political interference stymied what was asserted to be conceptually sound reforms. Keywords: Corporate governance reform; financial performance; package; mixed-ownership model; state-owned enterprises

INTRODUCTION The financial performance response of a portfolio of state-owned enterprises (SOEs) to mandated changes in corporate governance is examined empirically in this paper. The Government of India (GOI), like many governments around the world for example New Zealand, is moving to increase public shareholding in key SOEs. This mixed-ownership model challenges the traditional value engines of SOEs which are mostly driven by regulatory or policy considerations rather than financial return objectives. This makes government a different kind of shareholder altogether (Van Essen, van Oosterhout, & Heugens, 2012). Many prior studies show that government ownership is associated with inefficiency and financial underperformance compared with private firms (Boardman & Vining, 1989; Boycko, Shleifer, & Vishny, 1996). According to Van Essen, Engelen, and Carney (2013), the sensitivity of the government to the concerns of its stakeholders: employees and suppliers may make it difficult to maintain the corporation’s profitability during the time of crisis. The pressures for financial performance may be lower and Bradbury (1999) suggests that in the absence a market for corporate control, the role of external directors in SOEs depends on the level of government

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ownership and how active the state is in directing matters relating to its activities. There is a wide ranging literature concerning the role of government ministers but the general suspicion is that financial underperformance will remain. This outcome is often attributed to state shareholder’s pursuit of macroeconomic and social objectives in addition to the enterprises’ profitmaximising goal, weakening the board’s monitoring and strategy roles (Berkman, Cole, & Fu, 2002). Agency theory argues that there is an inherent divergence of interests between the managers and owners of the firm (Jensen & Meckling, 1976). In a world of incomplete contracts, a corporate governance structure is required to ensure the managers of the firm to pursue actions that are in the best interest of shareholders in all conceivable states of the world (Hart, 1995). If corporate governance mechanisms are successful in protecting shareholder wealth, their use should be associated with more efficient use of company resources and increased investment returns. That is, improvements in a firm’s governance through reforms should relate to better corporate performance. However, if the government as shareholder sets other objective with a social orientation then financial performance will suffer. Furthermore there is support for the view that as governments sell down their holdings the financial performance is likely to improve (Neill & Rondinelli, 2004). GOI introduced a number of reforms in the period which this study covers, including those of the Securities Exchange Board of India (SEBI) listing agreement clause 49 in 2005, pay incentives linked to performance in 2007 and the grant of autonomy to a small group which were recognised as being of strategic importance and having the potential to emerge as global players in 2009. These were all promoted as being designed to lift the financial performance of the SOEs. Did reforms make a significant impact on financial performance? The research is important in the Indian context providing valuable input for further evolving of public policy and has broader implications for two major reasons. Firstly, there is an increasing movement towards mixedownership models as governments, around the world, responding to the legacy of a global financial crisis, spinoff significant blocks of public enterprise equities to the share markets. Secondly, the method developed in this paper, provides a more coherent development of the finance thinking and micro-econometric modelling than is currently found in the extant literature dealing with the topic area. An announcement by GOI, in March 2012, of an intention to sell down the government’s holding of shares in central public sector enterprises

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(SOE) by releasing tranches to the public, increases the importance of considering financial performance. The movement towards a mixed-ownership model, as proposed by GOI, is in part, according to announcements driven by a need to raise money. Underperforming enterprises will realise relatively less money than better performing enterprises and the alternative of grooming SOEs for sale presents a potentially large opportunity costs. The importance of getting the governance correct is important but neglected. Governments wishing to privatise public sector enterprises that are underperforming are placed between a rock and a hard place. Where there have been prior attempts at reform it is important to establish whether these gained traction and materially lifted performance. Promoting SOEs for more public shareholding ownership needs to be transparent and cannot be based upon hidden subsidies or lucrative contracts with other government agencies which are in essence an inflated transfer price to build an overly stated bottom line. Maheshwari and Ahlstrom (2004), considered a turnaround case for the Indian SOE and it was clear that nearly every component of management thinking needed to change. The time-series history of financial performance is important and sudden unexplained spikes in the year prior to a large public issue of shares are likely to be viewed by the markets with suspicion. Within the SOE portfolio there are three categories, which are largely defined according to size, measured by net worth and turnover. Performance of these sub-groups and that of individual enterprises within each category is not uniform. Some components of the SOE portfolio may perform relatively better and this may provide guidance concerning what leads to superior returns. Many studies have found that state ownership does not produce superior firm performance and it is often linked to low efficiency (Bai, Liu, Lu, Song, & Zhang, 2004; Ding, Zhang, & Zhang, 2007; Yiu, Bruton, & Lu, 2005). If the conclusions of Neill and Rondinelli (2004, p. 66) are correct that mixedownership firms ‘do have significantly higher levels of work effort than state-owned enterprises’ then the question as to whether SOEs are capable of cultural change will be interesting to observe. The Enlightened Stakeholder theory adds the simple specification that the objective function of the firm is to maximise total long-term firm market value. In short, changes in total long-term market value of the firm are the scorecard by which success is measured. Majority of the SOEs are unlisted hence, the present study considers return on assets (ROA) as a proxy to assess the changes in the firm value. The present study investigates the impact of corporate governance reforms on corporate performance by comparing a sample of 84 SOEs. The

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study is timely and relevant in the present situation where various countries across the world initiated reform programs and where the efficacy of the SOEs in delivering value is widely questioned. According to Jensen (2000), the question to be raised when an organisation attempts to accomplish an objective through reform is: What are we trying to accomplish? Or, when all is said and done, at the economy wide or social level, the issue to consider is how do we measure better versus worse? or How do we keep score? The Indian government has initiated the corporate governance reforms with the intention of improving the efficiency and performance of the SOEs. Did the reforms generate increased financial performance for the SOEs? • Are the key Indian SOEs delivering value? • Is there any difference in the performance of the SOEs and similar listed public companies? The remainder of the paper is organised as follows: the second section outlines the background of the SOEs; the third section reviews the extant literature; the fourth section presents the data sources, sample selection, methodology and empirical findings; and the fifth section conclusion for the research.

BACKGROUND OF INDIAN CENTRAL PUBLIC SECTOR ENTERPRISES SOEs play a major role in the Indian economy with very significant national resources placed in their control. They influence growth in the economy and consume significant resources. The share of gross value addition of SOEs (net value addition + depreciation) to gross domestic product (at current market price) was 5.96% in 2010
2011 slightly down on the 6.44% in 2009
2010 (Public Sector Enterprise Survey, 2010
2011). With economic liberalisation post-1991, the sectors that were the exclusive preserve of SOEs were opened to the private sector. The SOEs increasingly faced competition from both domestic private sector companies and large multi-national companies. In response to the pressures SOEs were facing government moved to empower those perceived as having a comparative advantage in terms of strategic importance, turnover, net worth and performance, granting higher levels of autonomy and financial powers in 2007. The SOEs are governed by the Companies Act, 1956 and regulations of various authorities like Comptroller and Auditor General of India

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(C&AG), Central Vigilance Commission (CVC), administrative ministries, other nodal ministries etc. The Department of Public Enterprise (DPE) is the nodal department for all the SOEs, and formulates policy pertaining to SOEs. It lays down in particular, policy guidelines on performance improvement and evaluation, autonomy and financial delegation and personnel management. An address1 by President of India in the Joint Parliament Budget Session followed by Finance Minister’s Budget Speech in March 2012 clearly signalled a disinvestment policy for SOEs. For the year 2012
2013, the GOI proposes to raise R300 billion through disinvestment while reiterating that at least 51% ownership and management control will remain with the government. An earlier action plan for disinvestment in profit making companies approved November 5, 2009 includes: • Already listed profitable SOEs (not meeting mandatory shareholding of 10%) are to be made compliant by ‘Offer for Sale’ by government or by the SOEs through issue of fresh shares or a combination of both. • Unlisted SOEs with no accumulated losses and having earned net profit in three preceding consecutive years are to be listed. • Follow-on public offers would be considered taking into consideration the needs for capital investment of SOE, on a case by case basis, and government could simultaneously or independently offer a portion of its equity shareholding. • The Department of Disinvestment is to identify SOEs in consultation with respective administrative ministries and submit proposal to government in cases requiring Offer for Sale of government equity. A process of enhancing corporate governance commenced several years prior to the new divestment strategy. The introduction of SEBI Clause 49, (SEBI, Listing Agreement, Clause 49), with a new listing agreement between the stock exchange and the listed companies in the year 2000 has been revised a number of times. One notable provision of Clause 49, promulgated March 29, 2005, relates to the board composition. It stipulates that the board of directors of a listed company shall have a combination of executive and non-executive directors with not less than 50% of the board of directors comprising of non-executive directors. Where the chairman of the board is a non-executive director, at least one-third of the board should comprise of non-executive directors and in the case where the chairman is an executive director, then at least half of the board should comprise of non-executive directors. Non-executive directors are not have any material

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or pecuniary relationships with the company not related to the promoters or senior managers of the company, were not executives of the company during the preceding three financial years, are not material suppliers nor substantial shareholders of the company.

Memorandum of Understanding System in SOEs The power of performance measurement is underpinned by Osborne and Gaebler (1992) who suggest seven points: (1) what gets measured gets done; (2) if you don’t measure results, you can’t tell success from failure; (3) if you can’t see success, you can’t reward it; (4) if you can’t reward success, you’re probably rewarding failure; (5) If you can’t see success, you can’t learn about it; (6) if you can’t recognise failure, you can’t correct it; (7) if you can demonstrate results, you can win public support. A process of negotiating a memorandum of understanding (MoU) between the government and the management of the enterprise specifying clearly the objectives of the agreement and the obligations of both the parties was established in 1986 following the Arjun Sengupta Committee Report (1984). The main purpose of the MoU system is to ensure a levelplaying field for the public sector enterprises vis-a`-vis the private corporate sector. The management of the enterprise is made accountable to the government through a promise of performance. The government continues to have control over these enterprises through setting targets in the beginning of the year and by ‘performance evaluation’ at the end of the year (Public Sector Enterprise Survey, 2010
2011). Performance evaluation is undertaken based on a comparison of the actual achievements and the annual targets agreed between the government and the SOEs. The target constitutes both financial and non-financial parameters with different weights assigned to the different parameters. In order to distinguish ‘excellent’ from ‘poor’ performance during the year is measured on a 5-point scale (Public Sector Enterprise Survey, 2010
2011) (Table 1). According to Trivedi and Vittal (1992), the MoU system internalises the changing priorities of the government in a systematic way. In the absence of an objective method for performance evaluation, there is a danger of extreme reactions which are either difficult to enforce or justify. Secondly, the emphasis is on achieving the ’target’ for profit. The signal that is sought to be conveyed is that any slippage on the-profit front is becoming increasingly unacceptable. If an enterprise commits to a certain level of profit, it

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Table 1. Rating Excellent Very good Good Fair Poor Total

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Summary of the Performance of MoU Signing SOEs (Numbers). 2006
2007

2007
2008

2008
2009

2009
2010

2010
2011

46 37 13 06 00 102

55 34 15 08 00 112

47 34 25 17 01 124

73 31 20 20 01 145

67 42 24 24 02 150

Source: Public Sector Enterprise Survey (2011).

must ensure that it delivers that amount to the nation, and financial performance has moved to centre-stage of MoU and policy. The main issue confronting policy-makers is to devise ways of internalising this policy goal with clear and unambiguous signals regarding what is expected in terms of financial performance (Trivedi & Vittal, 1992). The Jagannath Rao Committee’s (Second Pay Revision Committee) recommendations of 2006 included, MoU performance evaluation as one of the basic criteria for performance related pay (PRP) (Public Sector Enterprise Survey, 2010
2011). The government accepted this recommendation and the MoU rating now forms the basis of PRP. The PRP is payable at 100% eligibility levels when the SOE achieves a MoU rating of ‘Excellent’. In respect of ‘Very Good’, ‘Good’ and ‘Fair’ MoU ratings, the eligibility levels for PRP are 80%, 60% and 40% respectively. If the MoU performance of a SOE is rated as ‘Poor’, it will not be eligible for PRP irrespective of the profitability of the SOE. The benefit of pay revision is allowed only to the employees of those SOEs which are not loss making and are in a position to absorb the additional expenditure resulting from pay revision through their own resources without any budgetary support from the government. Challenges to the SOEs remain in spite of the reforms. The aviation sector is a case in point. It is a cash strapped sector with issues ranging from increasing debt burden to cascading effect of taxes,2 which are identified as key cost drivers with aviation fuel price accounting for 40% of airlines’ operating costs (Hindustan Times, 2012a). The Planning Commission proposed a projected total outlay for the sector at over R547.43 billion for the entire plan period of 2012
2017, including R329.6367 billion for Air India and R175 billion for the Airports Authority of India (Hindustan Times, 2012a). Half of the ‘huge debt burden’ of $20 billion in 2011
2012 was aircraft-related and the rest of the relief package required for working capital loans and payments to airport operators and fuel companies.

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Inter-Ministerial Challenges The Indian Finance Minister Chidambaram suggested that the heads of India’s top central public sector undertakings (CPSUs) unlock their huge cash stock piles for real investments in order to boost spending and revive economic growth. SOEs that cannot generate competitive ROAs in a closeted public sector environment are not an attractive investment for the public. However, the chairman and managing director, NTPC (Hindustan Times, 2012a), felt that although the SOEs, have a capital expenditure plan of R1.75 lakh crore for the current fiscal year 2012
2013, it is challenging and difficult to go ahead with investment proposals and projects due to various inter-ministerial bottlenecks. On 23 October 2012 (Hindustan Times, 2012b) Prime Minister of India had a review by Cabinet Secretary Ajit Kumar Seth and Planning Commission Deputy Chairman Montek Singh Ahluwalia to weed out the inter-ministerial issues getting in the way of investments by the public sector undertakings (PSUs). The extent to which recommendations will be implemented and successful will take some time to be transparent.

REVIEW OF LITERATURE A significant body of prior research points to private enterprises perform better than public sector corporations. Public companies are thought to have fewer restrictions on behaviour of senior management than SOEs, especially in terms of capacity to innovate and obtain rewards for innovation (World Bank, 1995). A similar finding supported by property rights theory suggests that the differences in behaviour of managers in state sector organisations compared to private enterprises stems from ownership differences (Alchian & Demsetz, 1973). Alchian (1977) argues that behaviour under public ownership is different from that under private ownership because the cost-reward system impinging on the employees and the owners of the organisation are different. He proposes that under public ownership the costs of any decision or choice are less fully thrust upon the selector than under private property. This line of argument predicts that SOEs will perform less efficiently than those that are privately owned ones. Inefficiency due to multiplicity of objectives: Politicians and bureaucrats, who are vested with the job of monitoring on behalf of the larger public,

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according to Kornai (1980), are not as good at monitoring or designing incentive systems as shareholders in a private company. Another reason that managers in the public sector lack incentives to perform is that they do not fear bankruptcy; thanks to the ‘soft budget’ constraint, managers in the public sector can expect to be bailed out by public funds. In addition it suggested that SOEs are often chronically unprofitable, at least in part because they are often charged with objectives such as maximising employment and developing backward regions (Ben-Ner, Montias, & Neuberger, 1993; Boycko et al., 1996). It has been suggested state-owned firms do not serve the public interest particularly well (Grossman & Krueger, 1993) and state-owned firms are typically extremely inefficient (Boycko et al., 1996; Dewenter & Malatesta, 2001). The conclusion of these studies is that generally the SOEs disregard social objectives and their value and this combined with SOE inefficiency is inconsistent with the idea that state ownership adds value. According to Boycko et al. (1996), public choice theory complements the property rights approach and contributes to understanding inefficiency in the public sector through a focus on the behaviour of politicians and bureaucrats. Unlike their counterparts in the private sector, managers in the public sector lack focus because they are expected to pursue a variety of objectives, not all of which are related to financial performance. This multiplicity of objectives arise from public sector managers being answerable to different constituents, such as legislators, civil servants and ministers, each with their own objectives. Politicians, who are answerable to constituents such as labour, may push public sector managers to pursue objectives, such as increasing employment which in turn mitigates against profit maximisation. Both the property rights and public choice analyses suggest that the behaviour and performance of managers will differ between the public and private sectors because both the objective functions are different and the constraints are different. Neither is good performance incentivised in the public sector nor is bad performance penalised through takeover or bankruptcy (Boycko et al., 1996). Owing to the level of government ownership and participation in the firm, it is essential for SOEs to get the support of concerned ministry and key government officials (Ahlstrom, Bruton, & Lui, 2000). The findings of Maheshwari and Ahlstrom (2004) shows that the business environment, the firm’s decision-making process, its leadership characteristics, and the stakeholders’ responses were are all found to influence the firm’s action choices and turnaround process. This study also shows that in addition to the strategic and operational changes so commonly associated with firm turnaround,

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the importance of leadership and the basic credibility of the firm’s top management with major stakeholders and government officials also play key roles in the turnaround.

Accountability and Performance Duppati and Mishra (2007) review the role of state level public enterprises in India, noting that a blurred relationship exists between the general public as principal owners of the state property and government leaders as controlling agent. For improvements to occur there is a need for accurate and timely information from state enterprises and an appropriate process to monitor on an ongoing basis. Although a difficult exercise SOEs should strive to benchmark performance with appropriate peers, domestic or foreign (OECD, 2005). The study of Neill and Rondinelli (2004), examines the impact of ownership differences on the level of corporate entrepreneurship, human resource management practices, and worker effort among state, mixed and privately owned enterprises in Thailand. The results suggest cautious optimism about changes in ownership as a potential means for triggering organisational changes that leads to increased productivity. Mixed ownership may be an effective substitute for private ownership or, alternately, an effective transitional form of restructuring state enterprises in preparation for private ownership. Dewenter and Malatesta (2001) find that public offerings of stock by state-owned companies are significantly more under-priced than public offerings of stock by privately owned companies, and the under-pricing in the less developed capital markets is consistent with various political objectives of government officials rather than social welfare maximisation.

Impact of Risk and Industry on Performance Risk taking in SOEs may be punished rather than rewarded (Downs, 1967). Risk taking is an important component of corporate entrepreneurship and, therefore, given their advantage in aligning owner and manager incentives, public enterprises should have higher levels of corporate entrepreneurship than SOEs. Richard and March (1992) argue that organisations tend to display norms of rationality. It would appear, then, that the balance between the two forces depends on the risk profiles of decision makers in organisations. Risk-averse decision makers would avoid destructive

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behaviour, while risk-neutral or risk-seeking individuals would be more inclined to engage in it. A study of corporate governance practices and their effect on financial performance by Reddy, Locke, and Scrimgeour (2011) indicates that public sector corporate entities universally adopted the New Zealand Securities Commission recommendations to establish subcommittees for audit and remuneration. Their analysis shows that leverage has a positive effect on performance. The existence of remuneration committees and dividend payout ratio has a positive relationship with financial performance. Their work notes that public sector organisations perform well in financial terms vis-a`vis the private sector and that governance structures which are largely divorced from government intervention are a primary contributing reason. Challenges to the SOEs remain in spite of the reforms. The Aviation sector is a case in point. It is cash strapped sector with issues ranging from increasing debt burden to cascading effect of taxes,3 which are identified as key cost drivers and the aviation turbine fuel price accounting for 40% of the airlines’ operating cost (Hindustan Times, 2012a). The Planning Commission proposed a projected total outlay for the sector at over R547.43 billion. Several Asia-Pacific countries embarked on privatisation programmes through the 1990s and empirical findings of Bradbury (1999), suggest that the product market competition, the market for management talent, and the role of external directors are important and plays a significant role, if the market for corporate control is restricted. These results support Williamson’s (1983) hypothesis that directors can ‘substitute’ for the market. Their study also supports the view that managerial accountability, not the form of ownership, is a more important factor for the improvement of financial performance (see Goodman & Loveman, 1991). However, the concerns relating to corporate governance reforms and performance are manifested in various forms, like: underperformance, corporate collapse, corporate corruption and so on. For instance, the top three Indian SOEs,4 namely: Bharat Sanchar Nigam Ltd., Air India Ltd. and Mahanagar Telephone Nigam Ltd. alone incurred a loss equal to 74.35% of the total loss of all SOEs in 2011
2012. These companies were incurring losses consecutively, since 2009 onwards and this is an issue of corporate governance that continues. In many jurisdictions (developing countries) issues of corporate governance still persist even after the corporate governance reforms, according to OECD (2005) report. For instance, the commonly identified major challenges among Asian countries include: Striking a balance between

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the state’s responsibility for actively exercising its ownership functions, such as the nomination and election of the board, while at the same time refraining from imposing undue political interference in the management of the company. Ensuring a level-playing field in markets where private sector companies can compete with SOEs and that governments do not distort competition in the way they use their regulatory or supervisory powers. The obstacles identified includes political opposition, resistance from trade unions and company management, lack of expertise and professionalism at managerial level, lack of cooperation between government agencies. Research Questions The primary question is whether the governance changes made a difference. However, before addressing the question it is appropriate to build the picture about SOEs performance compared to their securities to present contemporary evidence concerning performance. A series of seven research question are addressed in sequence: 1. 2. 3. 4. 5. 6. 7.

Do SOEs earn non-negative returns? Are returns on SOEs > Risk-free rate? Are returns on SOEs > Market returns? Are returns on SOEs > Private sector returns for similar companies? Is there a size effect in SOE returns? Are SOE returns impacted by board size and executive compensation? Did SOE returns increase with governance reforms?

DATA SOURCE, SAMPLE SELECTION, METHODOLOGY AND EMPIRICAL FINDINGS Data Source and Sample Selection The data for the study are drawn from two main sources. The financial data are obtained from the database of DPE, Ministry of Heavy Industries. Information relating to the corporate governance variables is drawn from the Centre for Monitoring Indian Economy (CMIE) database. Additional information is obtained from the annual reports of the SOEs and other

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GOI published documents as required. DataStream and Reserve Bank of India reports are also used. The present sample of 84 SOEs are chosen from 89 SOEs that are identified by GOI out of the total 239 SOEs, to ensure financial autonomy based on their cognitive activities and performance and classified them into three categories: Maharatna, Navratna and Miniratna. Government has nominated these as being of strategic importance and having the potential to emerge as global players (Locke & Duppati, 2013). The sample covers seven sectors: energy, minerals and metals, chemicals and pharmaceuticals, engineering, transportation, consumer goods & services, and power sector & agri-based sector. As a portfolio these SOEs are broadly diversified and taken together should have a market risk, that is having a beta of 1.

Measuring Firm Performance The ROA, defined as net income divided by total fixed assets (Wintoki, Linck, & Netter, 2012), was chosen as the metric for financial performance. Alternative measures such as return on equity and Tobin’s Q are not appropriate given the lack of traded equity securities across the sample. The ROA is also applicable to stock exchange listed companies and Reddy et al. (2011) indicate that this is a robust measure providing a reliable comparison with private sector organisations. The research method followed is empirical drawing on financial data available in published sources. The major concern is with the performance of SOEs during the period 2003 through to 2011.

Control Variables The proxy used to measure efficiency is sales to asset ratio (STA) and it is expressed as sales divided by annual total assets. This is similar to variables used by Ang, Cole, and Lin (2000), Singh and Davidson (2003), McKnight and Weir (2009) and Gul, Sajid, Razzaq, and Afzal (2012). Following Charitou and Louca (2013) the study uses board size as an independent variable. The governance changes impacted board size. Duality did not alter, gender component on the boards did not change (although, it is now compulsory to have women on boards as per 2013, Companies Act) and the appointment procedures did not change. Besides,

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the intention of the study is specific, that is to capture the impact of the corporate governance reforms on the performance. Nonetheless, the studies investigating agency issues had used other variables like independent directors, audit committees and so on. The data were cleaned after checking for missing data and outliers. Missing data were addressed by corresponding with the database managers and when necessary a manual search of published sources to find the necessary information. The distribution of the data and the possible occurrence of significant outliers were investigated using a Grubbs test. No apparent irregularities emerged requiring transformation of data. Following Charitou and Louca (2013) the study uses board size as an independent variable. Duality did not alter, gender component on the boards did not change (although, it is now compulsory to have women on boards as per 2013, companies act) and the appointment procedures did not change. So the board size has been considered rather than the board composition. Besides, the intention of the study is specific, that is to capture the impact of the corporate governance reforms on the performance. Nonetheless, the studies investigating agency issues had used other variables like independent directors, audit committees and so on.

Methodology and Empirical Findings A series of univariate comparisons of the performance of the SOEs is informative, using ROA as the metric for financial performance. A benchmark reflecting the cost of investment is necessary to ensure that government is achieving a return greater than its cost of funds. As an initial starting point the 5 years government bond rate (Rf) a common proxy for the risk-free rate reflects the cost of debt. This may be viewed as the minimum return required by government for its investment. The (ROA-Rf) figures can be computed across each period. In essence the government is using its riskfree borrowing status to invest in risky ventures. In cases where the ROA is not greater than Rf the government is necessarily drawing further resources from the private sector or additional borrowing to subsidise enterprises that are achieving returns less than the risk-free rate, which is not a longterm sustainable position for any government engaged in managing commercial activities. The numbers reported in Table 2 indicate that a positive return above risk-free is achieved by SOEs. The inclusion of a risk adjusted benchmark into the analysis can be based on several approaches. As the portfolio of SOEs is broadly

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diversified a beta not dissimilar from the market portfolio is appropriate. The return on the market proxy is the appropriate benchmark. In the traditional capital asset pricing model (CAPM) formulation: Return on Portfolio = Rf þ βðRm − Rf Þ The market premium (Rm − Rf) is estimated as 12.79% (Mohanty, 2010). In Table 2 the abnormal return (AR) computed as ROA [Rf + (Rm − Rf)] is shown for the years 2003
2011. An AR of zero would suggest that SOEs are achieving a fair risk adjusted return. The computation of AR over time will reveal the possibility that enhanced management techniques, better governance, and clearer instructions from the owners has impacted on the returns made to government and value added to the economy. In Table 3 the significance level testing for ROA
Rf and ROA
Rm is presented. The mean of ROA of the SOEs is above than the cost of debt as measured by the risk-free rate. The difference in the mean is 0.056 which is significant at 1% level. When the mean of the market premium is compared with the mean ROA of the SOEs, the difference is −0.07, and the t-values are significant at 1% level. As the sign is negative this indicates the Table 2.

SOEs Mean ROA Compared with Benchmarking Portfolio.

Time

Mean ROA

Rf

ROA
Rf

Rm

ROA
Rm

2003 2004 2005 2006 2007 2008 2009 2010 2011

7.0 10.3 12.4 14.6 14.1 15.8 13.4 12.8 12.9

5.33 5.56 6.59 7.32 7.82 7.92 6.62 7.51 8.32

1.67 4.74 5.81 7.28 6.28 7.87 6.78 5.29 4.58

18.12 18.35 19.38 20.11 20.61 20.72 19.41 20.30 21.11

−11.12 −8.05 −6.98 −5.51 −6.51 −4.92 −6.01 −7.50 −8.21

Table 3. Paired t-Test Comparing the ROA of the SOEs with Market Portfolio, that is, BSE 200 Index and Market Securities Rates. Details 5 year GOI treasury bond ROA
Rm

Mean Difference

t-Values

0.05 −0.07

9.09** −11.71**

The symbol *, **, *** indicate 10%, 5% and 1% statistical significance levels, respectively.

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performance is poor given the return that could be achieved elsewhere for the same level of risk. The test results suggest that the mean ROA significantly underperformed when compared to the mean of market returns on BSE 200 and the t-value is negatively significant. This signals challenges to SOEs to operate efficiently in the open market. A comparison of the mean of ROAs between the three sub-samples of (1) ROAMiniratna and ROAMaharatna; (2) ROANavratna and ROAMahratna and (3) ROANavratna and ROAMiniratna is shown in Table 4. The paired t-test results show significant difference in the mean of ROA of Miniratna and Maharatna. The mean difference of 0.084 is significant at 1% level. Likewise, the paired t-test results show a significant difference in the mean of ROA of Miniratna and Navratna. The mean difference of 0.06652 is significant at 1% level. When the mean of ROA is compared between the Navratna and Maharatna, the results show the mean difference of 0.14676 which is significant at 1% level. It is evident that the mean of ROA for Miniratna Category is larger than the other categories. The test result do not support acceptance of the null hypothesis at 1% level of significance. The results, in Table 4, indicate that Miniratna outperforms Navratna which in turn outperforms Maharatna supporting the proposition of the presence of the size effect in SOEs’ returns. This is consistent with the size effect proposition of Fama and French. The paired t-test results show significant difference in the mean of ROA of Miniratna and Maharatna. The mean difference is 0.084 and is significant at 1% level of significance. Likewise, the paired t-test results show a significant difference in the mean of ROA of Miniratna and Navratna. The mean difference is 0.06652 and is significant at 1% level. When the mean of ROA is compared between the Navratna and Maharatna, the results show the mean difference of 0.14676 which is significant at 1% level. The results indicate that Miniratna outperforms Navratna which in turn outperforms Maharatna supporting the proposition of the presence of the size effect in

Table 4. Paired t-Test Comparing Mean of SOEs ROA’s Over the Three Categories and before (2003
2006) and after the Reforms (2007
2011). Details ROAMiniratna and ROAMaharatna ROANavratna and ROAMahratna ROAMiniratna and ROANavratna

Mean Difference

t-Values

0.0842457 0.1467615 −0.0665266

18.85*** 6.25*** 12.45***

The symbol *, **, *** indicate 10%, 5% and 1% statistical significance levels, respectively.

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SOEs’ returns. This is consistent with the size effect proposition of Fama and French (1992). Paired t-Test Results Government introduced potentially significant governance reforms for SOEs in 2005. A reasonable presumption is that when government enacts policy changes to enhance governance this in turn should be reflected in the performance of the enterprises. While the governance changes were promulgated in 2005 there may be some time before these translated into greater ROAs. The analysis does not look just to the event but rather to comparing a pre and post-reform period considering these sub-period ROAs. A matched pairing of companies drawn from the stock exchange is next used as a benchmark for comparison. The pairing is based on the listed company being traded throughout the study period, being in the same industry, and having total assets that are similar. This deals with the possibility of survivorship bias, industry and size effects. There is a definite size effect present in the SOEs as reflected in Table 5. A comparison of the performance measures profitability (ROA), productivity (sales divided by total assets), leverage (debt/total asset) and size (log of total assets) with the matching private listed companies reveals significant differences for the two groups. It is evident from the paired t-test empirical results presented in the Table 5 below: The ROA, productivity ratio, and Size show a significant and positive difference when the SOEs are compared with matching private listed companies. The comparison of SOEs returns with the stock market in Table 3, suggested the SOEs are underperforming. However, in the matched pairing analysis the SOEs are doing much better. The explanation may lie in the preferential contracting granted to SOEs but prima facie it is encouraging. Table 5.

Paired t-Test Comparing the Performance of SOEs with the Matching Private Listed Companies (2003
2011).

Variables ROA Productivity ratio Leverage Size

Private Listed (Mean)

SOEs (Mean)

Mean Difference

t-Values

0.09 0.49 0.23 4.65

0.29 2.12 0.23 5.01

0.19 1.62 0.002 0.357

9.52*** 10.23*** 0.12 5.84***

The symbol *, **, *** indicate 10%, 5% and 1% statistical significance levels, respectively.

Financial Performance in Indian State-Owned Enterprises

77

A more comprehensive multi-variate analysis provides further insight into the differences and allows for consideration of the impact of changes in corporate governance and how it impacts on the financial performance of the SOEs.

Methodology and Variables A majority of estimation procedures used in the early corporate governance literature have been criticized for assuming a firm’s governance standards to be exogenous factors to firm value and performance (see, e.g., Klein, 1998; Mehran, 1995). However, several authors, including Hermalin and Weisbach (2003), Himmelberg, Hubbard, and Palia (1999), Denis and Kruse (2000), and Wintoki, Netter, and Linck (2010), argue that firm performance and corporate governance are simultaneously determined by unobservable firm-specific factors, and that governance changes are determined by past, present and/or expected characteristics of the firm. Moreover, Wintoki et al. (2010) categorise three potential sources of endogeneity, namely unobserved heterogeneity, simultaneity and dynamic endogeneity. In spite of some strong theoretical support for performance being positively impacted by the existence of governance mechanisms, the empirical findings of Wintoki et al. (2012) asserts that to date, researchers have been unable to provide consistent evidence regarding the governanceperformance relation. The dynamic GMM panel specifications, as developed by Holtz-Eakin, Newey, and Rosen (1988), Arellano and Bond (1991), Arellano and Bover (1995) and Blundell and Bond (1998), can overcome the estimations problems introduced by unobservable heteroskedasticity, simultaneity and dynamic endogeneity, to produce unbiased and consistent estimates by employing valid internal instruments during estimation. OLS Pooled Regression Model. The study uses a regression based approach to investigating the relationship between performance and structural and governance variables. Panel data covering both cross-sectional variables for individual corporations and time-series data of the cross-sectional for several years are used. The regression form is: Yt = ϕ0 þ ϕ1 X1it þ ϕ3 X2it þ uit where Yt is dependent variable, that is ROA;

ð1Þ

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Table 6.

Presents Results from Pooled OLS Regression Model.

ROA

Z Values

Leverage Productivity ratio Board size Enterprise size DV-executive compensation Constant Heteroskedasticity χ2 (1) Prob > χ2 Multi-colinearity VIF Mean

−9.93*** 3.53*** 0.00 2.02*** 2.18*** 1.92

Co-efficient 0.0068 0.0044 3.06e-06 0.0068 0.0184 0.0732

22.97 0.000*** 1.00
1.77 1.32

The symbol *, **, *** indicate 10%, 5% and 1% statistical significance levels, respectively.

X1it is a vector of independent variables including firm characteristics (leverage, productivity, board size, enterprise size, and X2it is a vector for dummy variable which is 1 for the period from which the Executive compensation pay package is made effective and otherwise 0. The results for the pooled OLS estimation are reported in Table 6. The results suggest significant relationship between the leverage, productivity ratio, Executive compensation, and enterprise size. More specifically, the firm’s financial leverage has a significant and negative impact on the firm’s performance, that is ROA while, the productivity ratio, size and executive pay dummy have a significant and positive effect on the SOEs’ performance. The possible existence of multi-collinearity, although looking unlikely with the significance levels with the exception of board size, is tested using with variance inflation factors (VIFs) for the variables used in the model. VIF ranged from 1.00 to 1.77, with a mean value of 1.32, which is well below 10, indicating that multi-collinearity is unlikely to confound the findings. The Breusch
Pagan/Cook
Weisberg test for heteroskedasticity presented a χ2 = 22.97 and Prob > χ2 = 0.000 which is of the presence of heteroskedasticity. A dynamic panel regression model provides robust standard error estimates (Hoechle, 2007) and controls the heteroskedastic distortions (Baltagi, 2008). Dynamic Panel Model. The issues relating to heteroskedasticity and autocorrelation are addressed in the study by employing the Dynamic panel

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models: Fixed effects and Random effects. The fixed and random effect models are estimated to correct for the unobservable heterogeneity that may be present in the performance and firm’s characteristics including the board size. It is important to identify the suitable empirical model for the study. Towards this the study employs Hausman specification test to compare the fixed effect and random effect models. If the model is correctly specified and if the individual effects are uncorrelated with the independent variables, the fixed effect and the random effect estimators should not be statistically different (Hausman, 1978). A Hausman specification test to compare the fixed effect and random effect models suggests that the fixed effect model is more appropriate in estimating the investment equation χ2 = 3.54; Prob > χ2 = 0.617. Accordingly a fixed effect model is pursued (Table 7). Endogeneity Testing Using the Durbin-Wu-Hausman Test. In the presence of endogeneity, the OLS and fixed-effects panel estimation models will produce biased parameter estimates, while those of the dynamic generalised method of moments (GMM) panel models will be superior in terms of consistency. However, if the regressors are exogenous, the OLS and fixed and random effects specifications will produce parameter estimates that are more efficient than their dynamic GMM counterparts. As such, it is crucial to ascertain the presence of endogeneity in the corporate governance reforms and the performance of SOEs before proceeding with the dynamic GMM specifications. To confirm the need to apply the GMM approach in addition to the OLS and fixed-effects estimation approaches, the study conducts a formal test of endogeneity in the various performance metrics to assess the necessity of deviating from the pooled OLS specification. Table 7. Fixed Effects Regression Results
A Panel Data Approach. Variables

Fixed Effect (t-Values)

Leverage Productivity ratio (sales/assets) DV-executive compensation Board size Enterprise size (log of TA) Constant Observation

−5.26*** (−0.1740) 2.34*** (0.0053) 2.64*** (0.0186) −0.30 (−0.0003) 1.36 (0.0120) 0.11 (0.0112) 755

The symbol *, **, *** indicate 10%, 5% and 1% statistical significance levels, respectively.

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More specifically, the Durbin-Wu-Hausman (DWH) test for endogeneity (Durbin, 1954; Hausman, 1978; Wu, 1973) is applied. Results presented in Table 8 reveal that endogeneity is a significant concern for the regressors. These findings confirm that the fixed-effects coefficients-estimates are unreliable and biased. Dynamic Difference GMM Panel Regression Model. The results of DWH test for endogeneity leads to employing the dynamic difference GMM panel method of estimation. According to Peterson (2009), the researcher can use a fixed-effects panel model to produce consistent parameter estimates robust to unobservable heterogeneity, if the unobservable characteristics are constant over time for an individual firm. Such an assumption is plausible within a panel dataset exhibiting a small time series and large cross section, as unobservable firm attributes are unlikely to vary significantly over a small period of time (Schultz, Tan, & Walsh, 2010). However, fixed-effects panel specifications only produce consistent parameter estimates under the assumption of strict exogeneity. That is it is assumed that a firm’s corporate governance and performance are orthogonal to past, present and future performance. Therefore, it is likely that a firm is subject to simultaneity and dynamic endogeneity and therefore, the assumption of strict exogeneity is violated. Hence, the fixed effect model may not be adequate to capture the all sources of endogeneity. Consequently, this study uses estimation procedures that are robust to dynamic endogeneity, simultaneity and unobservable heterogeneity, namely the dynamic panel GMM model. The results of DWH test for endogeneity leads to employing the dynamic difference GMM panel estimation. Table 9 below presents the GMM Dynamic panel regression results. When the coefficients and Z values of the GMM model are compared with the pooled OLS, and Fixedeffects panel, the differences are significant. More specifically, the financial leverage which was significant and negative under OLS & FE has become insignificant under the GMM approach. Likewise, the board size which Table 8. The DWH Test for Endogeneity of Regressors. Leverage Board size Productivity ratio (sales/assets)

DWH Test χ2 Test

P-Value

Degree of Freedom

15.71 8.112 6.64

0.000*** 0.004*** 0.009***

754 752 753

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previously showed an insignificant relationship with performance (ROA) has become significant and negative. While, the productivity ratio remains significant and positive, it does show a decline in magnitude under GMM. These differences in GMM specification indicate endogeneity bias is present in the estimates of OLS, Fixed effect panel specifications. Careful diagnostic testing of the linear models reveals a different picture to the initial work. The GMM Specifications are well-specified based on the Hansen/Sargan test of over identifying restrictions, the Arellano
Bond test of autocorrelation (AR1 and AR2), and the F-statistics of the first-stage regressions. According to Arellano and Bond (1991) the GMM estimator requires that there is first-order serial correlation (AR1 test) but that there is no second-order serial correlation (AR2 test) in the residuals. Since the null hypotheses are that there is no first-order (AR1 test)/second-order serial correlation (AR2 test), it means that one needs to reject the null hypothesis in the AR1 test but not to reject it in the AR2 test to get appropriate diagnostics. The Hansen J-statistics tests the null hypothesis of correct model specification and valid over identifying restrictions, that is validity of the instruments (Baum, 2006). The rejection of the null hypothesis means that either or both assumptions are questionable. Baum (2006, p. 201) argues that the Hansen J-test is the most commonly used diagnostic in GMM estimation Table 9.

GMM Dynamic Panel Regression Analysis of ROA.

Variables Leverage Enterprise size (log of TA) DV-executive compensation Productivity ratio (sales/assets) Board size Log of TA Log of BoardSize Log of Netprofit Net worth Log of STA Constant Sargan test Prob > χ2 χ2 (27) AR (1) AR (2)

GMM (Z Values) −0.74 (−0.0394) −0.14 (−0.0026) 0.0006 (0.0208) 4.47*** (0.0044) −4.22*** (−0.0046) −0.16 (−0.0032) −0.95 (−0.0087) −2.28 (−1.28e-07) 1.51 (1.28e-08) −3.97 (−0.0037) 1.20 (0.2115) 34.57 0.1498 0.0001*** 0.8959

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for assessment of the suitability of the model. It is evident from Table 9 that the Sargan test of over identifying restrictions does not reject the null at any conventional level of significance (p = 0.1498). Hence, the results suggest that the model has valid instrumentation. Difference in Differences Model. The extent to which the various corporate governance reforms impacted on the financial performance of SOEs is of interest. A DID model is used to assess the impact of the corporate governance reforms on the performance of the SOEs. This method requires only aggregate data on the outcome variable: no covariates or micro data are strictly necessary. The basic analysis involves computing averages for the two groups in the two time periods. The Indian SOEs (treatment group) are those on which the CG reforms are initiated and Indian Private Listed companies (control group) are those which are not affected by the corporate governance reforms. This DID approach is estimated by computing a double difference, one over time (before-after) and one across subjects (between those affected by policy reforms and those which are not). The present study categorises the sample into two types: (1) categorised SOEs (84) and (2) listed companies. The corporate governance reforms are initiated to empower the SOEs towards market driven economy so the SOEs are considered as the treatment group and Listed Companies are control group. The results shown in Table 10 are obtained by using the regression model given below: Yi;t = α þ βTi þ γPt þ δTi × Pt þ ɛi;t where Yi,t is the ROA (and other explanatory variables as shown in the Table 10); Ti is a dummy variable, which is 1 if affected by the reforms & 0 if not effected by the reforms; Table 10. Regression Estimates of the Effect of Corporate Governance Reforms on Performance of SOEs
Difference in Differences Approach. α (Constant) ROA Productivity (S/TA) Leverage Size
Total assets

Ti

Pt

Ti × Pt

R2

2.49*** (0.038) 5.28*** (0.081)

0.21 (0.101) 7.67*** (0.104)

−0.40 (−0.101) 1.29 (0.371)

−0.40 (0.100) −1.42 (0.372)

20.79*** (0.040) 110.67*** (0.069)

−10.02*** (0.052) −31.32*** (−0.089)

1.91* (0.185) −7.87*** (0.316)

−2.12*** (−0.186) 0.12 8.41*** (0.318) 0.54

0.02 0.06

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83

Pt is a dummy variable, where 0 indicates the pre-reform period and 1 indicates post-reform period; Ti × Pt is an interaction term, that is the product of the Ti and Pt and α, β, Y and δ are the regression parameters to be estimated. It is evident from Table 10 that the corporate governance reforms had a significant impact on the Indian SOEs relating to the leverage, Size, Efficiency ratios and Investments. However, the effect is negative in case of leverage and efficiency ratio, while the investments and size had positive implications. The results are significant for the SOEs.

CONCLUSIONS The paper examines the impact of corporate government reforms on the financial performance of SOEs during the period 2003
2011. The findings indicate that the various corporate governance reforms collectively exhibited a positive and statistically significant impact on performance. The robustness of the empirical analysis places the findings on a more authoritative platform than early research regarding SOE performance in India. The contribution is therefore important in terms of future research and the framing of government policy relating to enhancing corporate governance policy. To assess performance of SOEs the government bond rate was first selected as a benchmark. As the financial structure of the majority of SOEs is 100% equity held by government which is running financial deficits and borrowing funds this is an important minimum requirement. The test results indicate that a positive return above the risk-free (government bond rate) is achieved by SOEs. This makes us to conclude that the SOEs performance across the study period has remained relatively stable in nominal terms. This suggests a degree of robustness when compared with the difficulties experienced in many economies associated with the global financial crisis. The consistent performance also indicates the risk aversion on the part of the SOEs. For instance, when the performance of the portfolio of SOEs is compared with the stock market index as a proxy, the results suggest significant underperformance of SOEs. This is because the BSE market Index includes portfolios involving various degrees of risks making them sensitive to cyclical changes. This is evident from the findings of Locke and Duppati (2013) that there was a significant slump in the mean of market returns on BSE 200. This signals challenges to SOEs to operate efficiently in the open

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market, especially as avowed intentioned of reforms to SOEs governance from the 1990s onwards has been to put them on a footing to compete with the private sector. This finding could be viewed as a strong indictment of the governance of the SOEs. A matched pair analysis considering explanatory variable capturing profitability, productivity, leverage and size reveals outperformance of SOEs when compared to a similar sample of publicly listed companies. This should be understood that the institutional framework involving various levels of monitoring from ministerial, DPE (GOI Nodal Agency) and performance evaluation through MOUs are enabling the SOEs to be more resilient and steady in performance. It is evident from the empirical findings that the mean of ROA for Miniratna Category is larger than the Navratna and Maharatna categories. The test results indicate that Miniratna outperforms Navratna which in turn outperforms Maharatna supporting the proposition of the presence of the size effect in SOEs’ returns. Therefore, the various reforms introduced have made a positive contribution. The compensation package to the executive has delivered positive value through enhanced productivity in driving profit indicating more efficient internal performance. The negative relationship between the board size and ROA indicates the board size has implications on the performance of SOEs. The DID modelling indicates that improvements in the postreform period. Further empirical analysis is needed to evaluate board attributes and performance of SOEs vis-a`-vis publicly listed companies. Further research into the impact of regulated competitive advantage is necessary. Where SOEs in any country extract effectively monopoly profits through the preferential granting of concessions to resources, restrictions on competitors or access to capital at low cost, then these factors need to be carefully estimated. The continuing sell down of the GOI stake in SOEs should encourage prospective investors to ask whether the sources of returns are indeed sustainable if ‘protections’ are removed.

NOTES 1. www.divest.nic.in/dIS_current.asp 2. It refers to the point that the industry is faced with many taxes like those on fuel, aircraft leases, airport charges, air passenger tickets, air navigation service charges, maintenance costs, fuel throughput fees and other charges. 3. See Footnote 2. 4. Department of Public Enterprise survey report of 2011
2012.

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ACKNOWLEDGEMENTS We are thankful to Alessandro Hinna and Fabio Monteduro (track chairs) for their suggestions in IRSPM-2013 which are incorporated in the updated version of the paper.

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Wintoki, M., Netter, J., & Linck, J. (2010). Endogenity and the dynamics of internal corporate governance. Working Paper. University of Kansas and University of Georgia. Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105, 581
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750. Yiu, D., Bruton, G. D., & Lu, Y. (2005). Understanding business group performance in an emerging economy: Acquiring resources and capabilities in order to prosper. Journal of Management Studies, 42(1), 183
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THE DEVELOPMENT OF THE GOVERNANCE OF REGULATORY NETWORKS: THE CASE OF THE EUROPEAN TELECOMMUNICATIONS REGULATORY NETWORK Angel Saz-Carranza, Francisco Longo and Susanna Salvador Iborra ABSTRACT Purpose of this Paper
Networks are by now popular interorganizational coordination modes. However, there is still much to know regarding how networks are governed and how their governance develops and changes through time. Design/Methodology/Approach
This paper addresses the research question how does the governance form of networks develops over time by empirically studying the European telecommunications regulatory network using a case study approach.

Mechanisms, Roles and Consequences of Governance: Emerging Issues Studies in Public and Non-Profit Governance, Volume 2, 89
123 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-6630/doi:10.1108/S2051-663020140000002003

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Findings
We find that the network’s governance system is determined by the dialectical tension between network members (National Regulatory Agencies) and an external very influential body (the European Commission). This tension unifies the group in the classic external conflict
internal cohesion fashion. We also identify a second dialectical tension internal to the network among its members. The tensions are triggered by evaluations carried out by an external actor (the European Commission). In general, the process observed confirms the propositions that predict a formalizing of the governance as the network grows older. Research limitations/Implications
This research is based on a single case, a broader analysis of other regulatory networks among network industries at the European Union level will help researchers to establish a more comprehensive picture on the development of the governance form of this specific subset of goal-directed networks. Keywords: Goal-directed networks; regulation; governance; evolution; dialectics; case study

INTRODUCTION The last decades have brought major changes to our world challenging the traditional approaches to governance, either social, politic or economic. As a response, new forms of governance arise to connect players who used, not long ago, to work in isolation. In this scenario, goal-directed networks, ex-novo networked organizations formally established and designed to purposively achieve network-level goals, appear as popular inter-organizational co-ordination modes in many different domains, complementing and substituting hierarchical and market modes (Powell, 1990). In the public sector, goal-directed networks are present in such fields as public service delivery (Provan & Milward, 1995), local economic development (Agranoff & McGuire, 2003) and international regulatory coordination (Levi-Faur, 2011)
the latter subset constituting this paper’s empirical subjects. Despite the shifts towards the more pluricentric forms of governance have been widely acknowledged by the literature, little is known when it comes to how such goal-directed networks are governed themselves, and with respect to the underlying nature of the processes of change and development of their governance through time (Provan & Kenis, 2008).

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The issue is not insignificant since, although beyond of the scope of this paper, studies point out that the governance of goal-directed networks is a strong determinant of their performance (Dyer, Powell, Sakakibara, & Wang, 2007). Our study aims to analyse the dynamics and processes of development of the governance form of goal-directed networks. By empirically studying the European telecommunications regulatory network, this paper addresses the research question how does the governance form of regulatory networks develops over time. Our research design, a case study based on the analysis of both interviews to key actors in the network, and written documents, allows us to deeply explore and understand the nature and drivers of the changes and process of development of the governance form of networks. Moreover, by linking this research strategy to the literature on process theory (Van de Ven & Poole, 1995), we are able to propose a theoretical frame to the processes of development of networks, and regulatory networks among them. One specific domain where goal-directed networks are increasingly spreading as a co-ordination mode is international regulatory harmonization (Levi-Faur & Jordana, 2006; Slaughter, 2004). At the international level, as globalization increases international business interconnectedness, so does the need for global regulation (Levi-Faur, 2011; Mattli & Woods, 2009). However, given the fragmentation caused by the persistence of national sovereignty, goal-directed networks become the most suitable interorganizational transnational co-ordination mode available to national regulatory authorities (Kahler & Lake, 2009). Within the Single European Regulatory Space (SERS) (Levi-Faur, 2011) co-operation among member states (i.e. NRAs) and EU institutional players (i.e. mainly the European Commission (EC) but also the European Parliament and the Council) is commonly achieved through European networks of Regulatory Agencies (Coen & Thatcher, 2008) whose final aim is to harmonize the implementation of rules across EU. Research regarding regulatory networks is incipient (Coen & Thatcher, 2008). While a few studies are starting to look at regulatory networks, more research is called for (Levi-Faur, 2011), in particular regarding their governance and their development. The paper contributes to this call and enhances our knowledge about regulatory co-ordination, a phenomenon meant to be a key leverage factor for economic growth and political development in the years to come. As Levi-Faur (2011) points out regulatory networks ‘bridge the gaps between insulated hierarchies to form a network of stable and interdependent relations’. In a context where powerful and resilient players (i.e. EU institutions, member states, NRAs) simultaneously keep and delegate

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power, regulatory co-ordination is being a major driver for market integration in the EU. Assuming that as time passes regulatory networks do change either being transformed or replaced (Levi-Faur, 2011), it is relevant to better understand the nature of the processes underlying these changes as they have both political and economic consequences. Thus, the paper aims to explore the interplay of actor’s influences and external events in a context of regulatory co-ordination and how this shapes the network’s governance design over time. By doing so, we shed light on the underlying drivers of change and we are able identify the dialectical nature of the process of development of the governance form of goal-directed networks. The paper goes as follows. We first present the concept of network as an organizing form
an inter-organizational co-ordination mode
and present a typology of different goal-directed network types. We then review the literature on the governance of goal-directed networks as well as on process research from an organization theory perspective. We then present our methodology and the empirical material. The discussion of our findings and their relation to the literature follows. The paper finishes with a brief conclusion.

THE GOVERNANCE OF INTER-ORGANIZATIONAL GOAL-DIRECTED NETWORKS Goal-Directed Networks and Regulation Beyond the traditional dichotomy between markets and hierarchies as economic forms of organization (Williamson, 1975), networks are now recognized as a viable approach to: public and private governance; economic relationships; collaborative public management; resource allocation mechanism (falling somewhere between the make-or-buy alternatives) (Agranoff, 2007; Child, Faulkner, & Tallman, 2005; Miles & Snow, 1992; Powell, 1990). This popularity can be attributed to today’s world complexity which faces organizations, economic and social actors, and policy makers to problems whose resolution requires the joint expertise and resources of a set of players (O’toole, 1997; Rittel & Webber, 1973). Thus increasing the need for new organizational forms combining dispersed power with unification (Agranoff & McGuire, 2001). At its simplest, networks are defined as systems of relationships among parts (Scott & Davis, 2007). Networks, as inter-organizational relationships, can be broadly understood from two perspectives (Kilduff & Tsai,

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2003). On the one hand, the network is seen as an analytical concept describing a social structure that emerges serendipitously made up of individuals (or organizations) connected by some sort of interdependencies. On the other hand, as opposed to serendipitous networks, goal-directed networks emerge because there exists a common aim among its members and, as a consequence, most of the network’s activities focus upon it. As Provan and Kenis (2008) define them, goal-directed networks are ‘groups of three or more legally autonomous organizations that work together to achieve not only their own goals but also a collective goal’ (p. 228). The study of networks as an organizational form (Borgatti & Foster, 2003), in which our study falls, follows in this wake focusing on the networked organization as unit of analysis. The emphasis on the network as an organization per se (Provan, Fish, & Sydow, 2007) contrasts with the tradition of social network analysis (Wasserman & Galaskiewicz, 1994) a well-developed methodology aiming at the analysis of the relationships among the set of actors (i.e. individuals or organizations) around which a network of social interactions is structured. Social network analysis’ contributions assess the consequences of these patterns of connectivity and cleavages at the actor level (i.e. nodes and ties; structural holes; social capital; centrality; density) (Burt, 1992, 2000; Brass, Galaskiewicz, Greve, & Tsai, 2004; Gulati & Gargiulo, 1999). Although it is undeniable that the literature on networks as organizational form and the longstanding social analysis’ tradition are, to some extent, intertwined, we here aim to primarily contribute to the former and, more specifically, to what has been coined as the study of networks as a whole (Provan et al., 2007). As aforementioned networks as organizational forms have been contrasted to traditional forms of markets and hierarchies (Powell, 1990). These latter two forms have been the main conflicting images of interorganizational co-ordination modes (Williamson, 1975)
the means to organize the relationships between the different organizations. At the international level, the multilateral provision of goods and services prompt by Globalization runs in parallel to the necessity for transnational, global, regulatory agreements (Levi-Faur, 2011; Mattli & Woods, 2009). Although the shifts towards a more globalized governance are evident, the still dominant role of national governments and national sovereignty has positioned goal-directed networks of regulatory authorities as a feasible mean for inter-organizational transnational co-ordination (Kahler & Lake, 2009; Slaughter, 2004). In the European Union context, the simultaneous process of vertical delegation, from member states to the EU institutions, and horizontal delegation, from national ministries to

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independent NRAs (Coen & Thatcher, 2008), fostered the birth of European Networks of national regulators in many policy areas. When applied to our study setting, the market mode is clearly not applicable to interaction among NRAs, since these do not compete among themselves offering services to the same set of users/buyers as their role is to regulate a given sector or policy within the political and geographical boundaries of their countries. Perhaps it conceptual equivalent would be non-programmed co-ordination via ‘laisser faire’ (Keohane & Nye, 2000), where commitments among parties is low and interaction sporadic, ad hoc and informal. In contrast, European central banking system is an example of hierarchical mode: where national central banks are subordinated and dependent on the European Central Bank. The third inter-organizational mode, the network, implies complementarity and mutual adjustment between autonomous organizations, which are interdependent (Powell, 1990). These organizations, agencies or group of organizations, as happens in the case we focus on, co-operate beyond their own boundaries, engage in mutual action to achieve a common goal and are structurally interdependent although no organization is subordinate to others (Agranoff, 2007; O’Toole, 1997; Provan et al., 2007). Networks, therefore, allow players to mutually realize their goals without relying on rigid hierarchies (Wachhaus, 2012) and are particular suitable where reliable information and efficient information is key (Powell, 1990). Table 1 summarizes the characteristics of the three governance modes. In many regulated fields where regulatory responsibilities have not been effectively and fully delegated to a supranational entity, when it Table 1.

Three Modes of Governance: Markets, Hierarchies and Networks. Market

Hierarchy

Network

Normative basis

Contracts and property rights

Means of communication Conflict-resolution mechanisms Commitment among organizations Dependence between organizations

Prices

Employment/ ownership relationships Routines

Resort to courts

Administrative fiat

Low

Medium
high

Reciprocity and reputation Medium
high

Independent

Dependent

Interdependent

Source: Compiled by author based on Powell (1990).

Complementarities and mutual adjustment Relational

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comes to achieve a consistent implementation of the sectorial regulations, goal-directed networks are one of the most viable international coordination modes among autonomous NRAs. Within the European Union, goal-directed networks of regulatory agencies have arisen as a response for an improved, more loosed and enhanced co-ordination among the more or less interdependent organizations NRAs are (Coen & Thatcher, 2008; Van Boetzelaer & Princen, 2012). Regulatory networks, as a subset of public goal-directed networks, have certain peculiarities. These peculiarities play a significant role in our study. As Herranz (2008) points out ‘unlike for-profit networks, public networks are often characterized by additional legal, procedural, and political accountability relationships that constrain a public network’s capacity to flexibly form, expand, contract, or disband’ (p. 3). Moreover, when compared to other inter-organizational goal-directed networks, two are the most relevant specificities of regulatory networks. First, regulatory networks may be mandated by legislation, as is the case for several European Union level networks composed by NRAs and legally recognized by the EC as consultative bodies. Mandated networks are not as capable as other networks to autonomously modify their characteristics: that is purpose, rules, membership etc. Such modifications may require legislative action. Thus, mandated networks are not fully autonomous to modify themselves. For important changes to happen to mandated networks, as is the case of changes in their governance structures, these may have to be approved externally by a legislative body or any other non-member. For example, modifications to certain European regulatory networks need to be decided by the Council of the EU and the European Parliament. Another major specificity of these networks is membership. Membership in regulatory networks, in particular if these are mandated networks, is often fixed. That is, members may not have the power to invite new members, who have not been specified in the network’s founding mandate, to join the network: not everybody is eligible to partake in the network. Moreover, membership may be obligatory for some. And in addition, participation in many regulatory networks is by right, it is not as a result of credible commitments (Kelemen & Tarrant, 2011). The aforementioned peculiarities may appear as a constraint for change. However, as our case study shows goal-directed mandated networks such regulatory networks, do change and develop over time. It is therefore relevant, bearing in mind these singularities, to empirically disentangle and characterize the processes leading to the change and development of, among others, their governance structures.

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In addition, regulatory goal-directed networks may differ according to their purpose. In essence, public networks may deal incrementally with information exchange, member capacity-building, collective strategydevelopment, and joint execution (Agranoff, 2007). This conceptual framework of different types of goal-directed networks will help us in exploring the development of the network studied. As Levi-Faur (2011) points out regulation as a whole, results from the aggregation of four functional tasks
namely information gathering, rule setting, monitoring and enforcement tasks
tasks that may be performed by a set of multiple players or institutions. The literature suggests that European regulatory networks are set up mainly to improve co-ordination (Coen & Thatcher, 2008) by gathering and exchanging information, advising the EC and increasing the harmonious implementation of UE regulation among member states.

The Governance of Networks Irrespective of their purpose, goal-directed networks must somehow be governed to ensure co-ordinated action to achieve their goals (Saz-Carranza & Ospina, 2011). Provan and Kenis (2008) define the governance of networks as ‘the use of institutions and resources to co-ordinate and control joint action across the network as a whole’ (p. 231). Public goal-directed networks nor do benefit from a centralized authority wielding power over players (Agranoff, 2007) neither can they operate without a mechanism ensuring the network achieves its goals, operates effectively and articulates relationships (Huxham & Vangen, 2005; Sandfort & Milward, 2008). Indeed, network scholars argue that attention to governance is essential to any understanding of the dynamics of interorganizational collaboration and the determinants of goal-directed network performance (Dyer et al., 2007; Milward & Provan, 2006; Provan & Kenis, 2008). However, there is still a black box in the existing literature, which conceals the governance mechanisms of networks, the rules and power structure within themselves, the design of network’s governance form and, once these are set up, their development over time. It is well known that governing networks
or any other kind of interorganizational set-work
is an inherently difficult task and by no means easy (Human & Provan, 2000). Business scholars estimate that more than 50 per cent of alliances fail (Kelly, Schaan, & Jonacas, 2002; Park & Ungson, 2001). To the best of our knowledge, failure rates are not available

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regarding public networks. However, these networks, and regulatory networks among them, need to establish the right inter-organizational governance structures if the network is to reap the benefits of collaboration and to not succumb to the so-called collaborative inertia (Huxham & Vangen, 2000). Thus, more work is necessary in the field of the governance of networks in general (Provan & Kenis, 2008; Saz-Carranza & Ospina, 2011). This paper aims to contribute to the literature by shedding light on the nature and processes underlying the development of the governance structures of networks by empirically analysing the case of one of the most salient illustrations among the European regulatory networks, Body for European Regulators for Electronic Communications (BEREC).

Forms of Network Governance The characterization of the forms of governance of goal-directed networks has in Provan and Kenis’ (2008) contribution a cornerstone. According to their theoretical model and the typology they pose, governance in goal-directed networks takes one of three structural forms: shared governance among network members; the network governed by one of its members (i.e. lead organization); and delegation of its governance to a network administrative organization (i.e. NAO). The NAO is ‘a separate entity … set up specifically to govern the network and its activities’ (Provan & Kenis, 2008). These three forms allude to the structural dimension of network governance: that is the formal institutions and resources designed to co-ordinate and control joint action. Provan and Kenis’ (2008) ground-breaking work on network governance does not explicitly provide a specific set of defining elements of the governance form. From their description of the three governance forms we here derive the following elements: • • • • •

Centralization of co-ordination activities The nature of member interaction The power balance among members The formalization of the governance form The distribution of the cost of governance

In terms of this structural dimension, these forms conform a continuum along centralization and formalization. We refer to centralization when significant decision making occurs only in one organizational unit. This does not mean that this unit
that is the NAO
makes decisions unilaterally,

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but that this unit is the place where decisions are made and legitimized
whether by consensus, voting, or otherwise (Provan & Kenis, 2008). Formalization indicates the extent to which the rights and duties of the members of the organization are written down in rules, procedures, and instructions (Provan & Kenis, 2008; Ring & Van de Ven, 1994). On one hand, a shared governance structure entails a co-operative and non-brokered approach to governance in which members participate directly as equals. Hence the network is participant governed, decentralized and no formal governance structure is set up since network’s overall functioning depends on its members’ commitment and involvement. On the other hand, when the network is governed by one of its members or by a non-member specialized NAO, the network’s governance form becomes increasingly more centralized and formalized. Table 2 summarizes the characteristics for each governance form. Provan and Kenis (2008) argue that ‘the successful adoption of a particular form of governance will be based on four key structural and relational contingencies. These are: trust, size, goal consensus and the nature of the task (i.e. ‘the need for network-level competencies’) (p. 237). The contingencies are garnered from network literature and considered key predictors determining the choice of governance form in goal-directed networks. High density of intra-member trust allow for shared governance, while centralized trust and medium density trust call for lead-member governance and NAO governance, respectively. Similarly, high level of goal consensus may allow for shared governance, while on the other end low goal consensus would require lead-member governance. As number of participants and/or need of network-level competencies increase, the governance form should go from shared governance all the way to NAO governance forms. Table 2.

Shared Lead organization NAO

The Governance Form of Networks: Defining Elements. Co-Ordination Activities

Member Interaction

Power Balance

Decentralized Centralized (leadmember) Centralized (via NAO)

Multilateral Symmetrical Low Bilateral Asymmetrical Medium (via leadmember) Bilateral Symmetrical High (via NAO)

Source: Compiled by author based on Provan and Kenis (2008).

Formalization of Form

Cost Distributed Concentrated

Distributed

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Provan and Kenis’ (2008) theoretical model entails, as the authors argue, some insights about the expected development of goal-directed networks’ governance form. Changes in the aforementioned contingent determinants (i.e. trust, size, goal consensus and network-level competencies) would prompt the governance form to adapt in order to better serve the networklevel aims. While their contribution provides us with a tentative rationale for the change and development of the governance form of goal-directed network, we consider that in order to fully grasp the nuances of the processes and nature of these changes, literatures others that network’s literature, should come into play. The next section of our literature review is devoted to introduce a macro-framework of changes’ processes that we will use to characterize the development of the form of governance in our case study.

CHARACTERIZING THE PROCESS OF CHANGE AND DEVELOPMENT IN NETWORKS In this second part of the literature review, we lay out the conceptual framework we use
in combination with the network literature above presented
to explore the development process of the governance of the European telecoms regulatory network. Following Van de Ven and Poole (1995), we define development as ‘a change process, that is a progression of change events that unfold during the duration of an entity’s existence
from the initiation or onset of the entity to its end or termination’ (p. 512). Van de Ven and Poole (1995), in a seminal article on organizational process theorizing, identify four types of process theories: linear-sequential life cycle, teleological (repetitive circular), evolutionary (driven by environment), and dialectical. A process theory aims to unveil both the reasons for changes and development to happen and the way these developments deploy (Van de Ven & Poole, 1995). The authors’ framework provides the researcher with a powerful tool. On the one hand, it characterizes the change processes by identifying the circumstances that come into play in each of the process theories (i.e. life cycle, teleological, evolutionary and dialectical). On the other hand, as a consequence, the researcher is equipped to identify which of the four process theories is applicable to the case in point. They contend that all organizational theories explaining change use one or more of these theoretical ‘primitives’. Thus, in studying developmental processes, as it happens with the changes of the governance form of networks, scholars should first identify which of these theories are

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acting and how they relate to each other if more than one theory is relevant. The framework is based on two analytical dimensions: the number or units playing a role in the process (i.e. single or multiple entities) and the mode of change (i.e. prescribed or constructed). The rest of the section is devoted to briefly describe the four aforementioned processes theories and to link them with the existing literature on inter-organizational relations and networks.

The Processes Theories: Life Cycle, Teleological, Dialectical and Evolutionary The most popular theories explaining change in management and organizational literature are life cycle theories. These theories assume a linear sequence of prescribed inevitable stages that represent the organizational equivalent of the biological sequence of life. All of such theories comprise at least the following three stages: emergence (i.e. start-up), evolution (i.e. growth) and termination. Thus, life cycle theories expect the organization to mature and develop in a sort of compliant adaptation. When applied to inter-organizational relations (i.e. networks), scholars have proposed that in the evolution stage, actors start the ‘housekeeping’ and ‘learning’ as the network starts functioning, implementation takes place, and the relationship solidifies. The actors then recognize failures or changes within the network, which either produce changes to the network’s agreements and functioning or may, ultimately, terminate it (Commission, 2003; Kanter, 1994; Larson, 1992; Lowndes & Skelcher 1998; SazCarranza & Vernis, 2006). However, scholars differ about the exact nature of changes along a collaborative’s life cycle. Let us consider as an illustration the evolution of trust in inter-organizational collaborations. At one end, some scholars predict trust will grow with the collaboration, while others take it as an initial precondition that decreases as the collaborative is socialized within the participating organizations (Commission, 2003; Kanter, 1994; Larson, 1992; Lowndes & Skelcher, 1998; Saz-Carranza & Vernis, 2006). Specifically regarding network governance form changes or development, very little has been said. Provan and Kenis (2008) tentatively suggest a life cycle process in which the form ‘is likely to evolve in a predictable pattern from shared governance to a more brokered form and from participant governed to externally (NAO) governed’ (p. 246). As life cycle theories, teleological theories apply to single organizations. However, teleological theories consider the organization’s final, and

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previously set up, end or goal to be the driver of change. These theories imply a repetitive, circular sequence of goal formulation, implementation, evaluation, and, if necessary, modification. Often, teleological theories incorporate the idea of equifinality
that is different equally effective paths may exist to achieve the same goal. These theories tend to assume highly rational actors
in that they define goals and evaluate actions accordingly
but do accept that goals are socially constructed and do also change. This social-constructionist and dynamic characteristics of goals make the teleological process an infinite set of iterations. Applied to the result of an inter-organizational collaboration, a teleological approach consists of reiterative sequences of negotiation and commitment
where actors bargain and agree to rules
execution, and evaluation (Arin˜o & de la Torre, 1998; Doz, 1996; Ring & Van de Ven, 1994). As new situations are encountered and problems arise, the actors enter again the negotiation stage and will modify only those aspects perceived as problematic while retaining the other previously reached commitments. Learning occurs throughout the cycle (Weiss & Visioni, 2003). Organizational change, may be also the consequence of a process of interaction among different entities or groups. Dialectic theories pose that change (or the absence of it) occurs due to colliding forces that compete with each other for domination. Thus, these theories suggest that a thesis (supported by a group) is challenged by an antithesis (supported by another entity), which then result in a synthesis (an agreed solution among the colliding parties). These theories do allow for stability and non-change in those cases where the thesis overwhelmingly overpowers the antithesis, thus generating a synthesis, which is identical to the thesis. Dialectical approaches are certainly not new in organizations studies. During the late 1970s, Benson (1975) and Zeitz (1980) used a dialectics approach to organizational theory and inter-organizational relations, respectively. In the 1980s, Astley and Van de Ven (1983) proposed to reconcile central debates in Organization Theory via a dialectical perspective. A decade later, Nutt and Backoff (1992) proposed a dialectical approach to strategy. Yet, to our knowledge, a dialectical process approach to network governance has not been applied. Finally, evolutionary theories parallel the biological principles of variation-selection-retention which is at the basis of (neo)Darwinism. Evolutionary theories offer an explanation of change based on the idea of the best fitted. These theories assume the existence of a population of organizations competing in an environment of scarcity. Organizations inevitably experiment variations (usually randomly though these theories do not exclude rational modifications). Organizations then compete with each

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other for scarce resources and only the fittest are selected (i.e. survive). Surviving organizations retain the variation. The four theories imply very different characteristics. Thus, evolutionary and life cycle theories are deterministic in that some sort of inherent imprinted routine paces the emergence-evolution-termination and variation-selection-retention sequences. Teleological and dialectical are, on the contrary, open-ended and socially constructed. Evolutionary and dialectical theories imply at least two actors in competition or in conflict, respectively. On the contrary, life cycles and teleology are self-referential in nature
though they allow for more than one unit to be involved in the process. Additionally, each theory implies very different mechanisms: life cycle theories imply compliance to best fit the present stage, teleology involves purposive analysis, conflict is at work in dialectics and variation and competition in evolutionary theories. Lastly, each of the theories involves different event sequences. Table 3 summarizes these characteristics. The above description allows the researcher to analyse the change studied and identify its main characteristics. He or she can then use one, or more, of the change theories that apply and further explore, describe, and explain the development. For example, if when exploring a developmental process the researcher finds that two units are in conflict to take control over the same object then it should consider the dialectical approach. If

Table 3. Nature of Process

Characteristics of Process Theories. Minimum Set of Units

Mechanism at Work

Life cycle

Prescribed, deterministic

Single unit/entity Compliance

Teleology

Open-ended, socially constructed

Single unit/entity Purposive analysis

Dialectics

Open-ended, socially constructed

2, conflicting units

Conflict for control

2, competing units

Competition for scarce resources

Evolutionary Prescribed, deterministic

Source: Compiled by author based on Van de Ven and Poole (1995).

Sequence of Events 1_Emergence 2_Evolution 3_Termination 1_Goal-setting 2_Execution 3_Evaluation 4_Modification 1_Thesis, Antithesis 2_Conflict 3_Synthesis 1_Variation 2_Selection 3_Retention

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he/she finds that an organization
or several organizations collaborating and thus behaving as one
modifies its action to better direct itself towards the achievement of a specific goal, then he/she should use a teleological approach in theorizing the development. Furthermore, these different theorizing approaches are not exclusive of one another. Van de Ven and Poole (1995) are very pungent in their call for combining more than one ‘primitive’ process theory when constructing a specific theory of change. They justify drawing on different process theories because of several reasons. First, by definition organizational process phenomena extend in time and space. Therefore, different process theories may come into play at different points in time or space. Second, any of the above four process theories, are inherently incomplete: key components in all theories are exogenous to the phenomenon studied (i.e. how is emergence triggered in the life cycle model? How is dissatisfaction triggered in a teleology model; antithesis in dialectics; or variation in the evolutionary model?). When the researcher identifies more than one theory applicable, then he/she will have to determine how the different process theories related. The relationship between theories may be nested or at the same level of analysis. Theories may operate simultaneously or sequentially. Van de Ven and Poole’s (1995) framework will assist our empirical assessment of the development of the governance form of BEREC, and the former groups of telecommunications regulatory agencies, since it offers us a suitable tool not only to identify the nature of the processes coming into play at each moment (i.e. different processes theories), but also to recognize how the main players involved in its development and evolution engage to with each other to prompt and influence change. As aforementioned we combine this literature with the literature on the governance form of networks to, through the analysis of our case study, shed light to the nature of the processes of development the structures enacted to govern the network. Thus, analysing the circumstances of change and applying the most suitable set of processes theories to it, we will able to go beyond the surface description of temporal changes, and to see through them (Tsoukas & Hatch, 2001).

METHODS Our research design consists of a qualitative case study using contentanalysis of documents and transcripts of in-depth interviews. Three reasons

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justify in-depth qualitative research as the most appropriate methodology to address the inquiry: the dynamic nature of the topic, the absence of previous empirical research, and the exploratory character of the research question (Agranoff & Radin, 1991; Marshall & Rossman, 1995; SazCarranza & Ospina, 2011). The European telecommunications regulatory network is officially called the BEREC. With respect to its selection, BEREC represents a purposive, theoretically driven sample. Although supranational regulatory co-ordination is increasingly present at the European Union level in a wide variety of policy arenas such as social affairs, justice or safety, network industries (i.e. electricity, communications, securities trading etc.) do stand alone as paradigmatic illustrations not only due to their market relevance, but also because they are at the centre of the shift towards a more supranational co-ordination of previously closely related to national governments’ industries (Coen & Thatcher, 2008). In these regulatory spaces, regulatory networks are becoming key governance mechanisms in the EU (Levi-Faur, 2011). Among EU regulatory networks, those in the telecoms, energy, and financial sectors are experiencing important transformations and political deliberations and have recently finalized a third wave of integration. BEREC was finally selected because we were able to secure access to this network. Data collection was based on in-depth individual and group interviews with staff of both the network and NRAs. The interviews elicited the interviewee to describe their personal experience with the network, to narrate how the network was designed and why, to identify which were the most difficult and conflictive moments during network development and how conflicts were resolved. A fluid interpretive technique allowed flexibility to move the conversation in any direction to capture these broadly and deeply. Our interviews were unstructured as they were not guided by a predetermined specific set of questions. This technique allowed the interviewees to express, in their own words, their experiences and insights from the process (Corbin & Morse, 2003; Corbin & Strauss, 2008). Interview sampling was based on a snowball strategy (Miles & Huberman, 1994). We started with one NRA with whom we had access and then we moved on through the network. The four most influential NRAs identified by the interviewees are included, as well as the EC, the mandating party, and the incipient BEREC office. For NRAs, the equivalent to the director for international affairs were interviewed
those who were most involved in the negotiation and those who prepare the meetings of the different NRA chairmen. The interviews could not be recorded since

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interviewees would not allow to it, but detailed notes were taken from the conversations. Data gathered from the interviews was complemented with two documentary sources. On the one hand we analysed documents proposing and determining network governance forms and rules of procedures (e.g. EECMA proposal). On the other hand we analysed correspondence between the key actors involved in the network design (e.g. EC letter 26 November 2006 Proposal). The documents were analysed to overcome potential gaps, inaccuracies, biases or limited knowledge interviewees might have when recalling the network history. Both the detailed notes from the interviews as the main documents were coded. ATLAS.ti was used to help organizing documents and quotes during the coding process. We coded the interview notes using an inductive coding strategy (Miles & Huberman, 1994): we had no theory-based codes to start off with. Based on the memos from the interviews and the documentary sources, two independent coders tagged any instance that pointed towards negotiation or conflict between any different parties. We also coded any piece of information that explained any change or attempt at changing any network characteristic. To improve reliability as consistency in judgment (Boyatzis, 1998) one this initial round of coding was completed, the coders work together to compare their results and to reach a final agreement on the code. The insights gathered from the BEREC’s case serves us to an appropriate vehicle to answer our research question on the development of the governance form of regulatory networks. After several coding waves, we ended with a final set of codes, which ultimately led to our narrated findings.

The Case Study During the 1990s, the EU started the process to create telecom competitive markets in all member countries (MS) as well as the first steps towards market integration across Europe. This process culminated in the first telecom regulatory package in 1998 composed of a series of directives on competition, licensing, and interconnection and standards. The main discussion in the field of telecommunications in the EU regarded the amount of independence the NRAs should have, incumbent public telephone operators (PTOs) and on the fact that states were failing to transpose correctly the EC legislation. Both the EC and the European Parliament repeatedly called for a Euro-telecoms regulatory authority to prevent fifteen differing

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regulatory areas developing (Thatcher, 2001). Nonetheless, member states opposed this proposition as they were not ready to accept such a powerful authority. The EC called for, at a minimum, veto powers of national regulatory decisions contrary to openness and competition. The European Council denied the EC such powers. Also during those years, in 1997 to be more precise, different European NRAs set up the independent regulators group (IRG) as an unofficial forum to share information and bestpractices. From the outset the EC has not been member of the IRG. In preparing for a second regulatory package, the EC launched a communications and public review (EC Communications Review, 22 December 1999). Among the proposals discussed, the EC presented the idea of a High Level Communications Group (HLCG), essentially a network of NRAs that would advise the EC, monitor NRAs’ activities, and resolve international inter-NRAs disputes. The NRAs publicly responded that such an advisory body was not needed, given the existence of the IRG, and that conflict-resolution responsibilities were inappropriate for such advisory body: ‘Regulators were … skeptical about the HLCG’ (EC Communication on Public Consultation, 26 April 2000). Nevertheless, the EC’s directive proposal for a new regulatory package included the HLCG but without the conflict-resolution powers (EC Proposal for a Directive on a Common Regulatory Framework, 12 July 2000). The Council, however, ‘deleted the provisions related to the High Level Communications Group, on the advice of the Council Legal Service. The Commission can reluctantly accept this, and will examine the possibility of setting up such a group at its own initiative’ (Commission position on Council common position, 18 September 2001). While the framework directive did not include an NRAs’ advisory group to the Commission, in 2002, a decision of the EC created the European Regulators Group (ERG) to fulfil this role (Kelemen & Tarrant, 2011). The ERG, the seed that would later develop into the present Body of European Regulators of Electronic Communications (BEREC), consisted of 27 EU NRAs plus the EC as a non-voting member. Since its establishment, the ERG co-existed with the aforementioned IRG. The difference between IRG and ERG is that, in terms of membership, the former does not include the EC but includes EFTA and EU-candidate states, while the latter includes only EU members and the EC. In terms of their goals, while the ERG was purposively created and officially recognized as an advisory body to the Commission, the IRG still is an association of independent NRAs where the EC is not present. With respect to the original HLCG

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initially proposed by the EC, the ERG did have neither conflict-resolution powers nor NRAs’ activity monitoring duties. The third wave of regulatory harmonization arrived a few years later. As the need for further regulatory consistency at a European level advanced, the Commission first sent a letter to the ERG in 2006 stating that it would seek greater powers to be able to overrun some national regulations produced by NRAs, and later proposed in 2007 the creation of the European Electronic Communications Market(s) Authority (EECMA): a structure closer to a hierarchy, that is an ‘authority’ or European level agency, rather than a network. The proposal includes the outline of the governance system of the agency composed of a Board of Regulators and an Administrative Board of twelve members: six appointed by the EC and six by the Council. NRAs reacted. They decided to strengthen ERG sufficiently to signal a more committed stance towards regulation harmonization. Thus, they decided to set up an IRG/ERG secretariat in Brussels. Negotiations between the EC, the Council and the European Parliament ensued. These eventually gave birth to BEREC, a revamped ERG, a network structure composed by all European Union NRAs and the EC. While the latter may attend BEREC’s governance board (called the Body of Regulators (BoR)), it has no voting power. The 2009 regulation that creates BEREC states that its propositions must be taken in ‘utmost’ account by both the EC and the NRAs. BEREC thus has stronger implications than ERG had (which was merely an information-sharing network). While national-level implementation is left to each NRA, BEREC is a network where members pool decisions and co-ordinate their action. BEREC has currently set up the Office with 18 staff that works for the network itself. The Office is overlooked by the Management Committee
which is essentially the name that the BoR adopts when taking on issues regarding BEREC’s Office, operations, staffing, and budgeting. The main difference between the Board of Regulators and the Management Committee, in addition to their varying responsibilities, is that the EC has right to vote in the Management Committee while it does not have it in the Board of Regulators (Fig. 1). IRG still exists and
based on our interviews
NRAs do not have any intention of eliminating it. IRG remains the forum where the NRAs can get together away from EC’s surveillance. This is important to NRAs when discussing EC’s public consultations or when preparing responses to EC’s requests.

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Board of Regulators (BoR) 27 NRAs

Management Committee (MC) 27 NRAs + EC

Office

Working Groups 1

2

Fig. 1.

3

4

5

6

…

BEREC’s Structure.

FINDINGS The Teleological Dialectics of Network Development The rich material that composes our case study allowed us to go beyond the simple recognition of the path of changes we have briefly described in the previous section. Bearing in mind the theoretical background this paper builds on
the literature on network governance and the literature on processes theories
we are able to assess the development of the governance form of the telecommunications European regulatory network along its history in a new light. Based on our analysis of the main documents and interviews, we propose that the dialectic mode is the most appropriate process model to understanding BEREC’s development and changes over time. In our case study changes arise, as was evidently manifested by the interviewees, in parallel to conflict and tensions. These tensions, as the illustrative quotes we include in Table 4 show, were not only present between the EC and the NRAs, as it might seem plausible, but also were recognized to exist among the individual NRAs themselves. All interviewees recognized the tension between the EC and the NRAs, and many also recognized tensions among NRAs in defining the small print of BEREC’s rules of procedures. Tension and confrontation among a set of multiple entities are characteristic circumstances of a dialectical process of development and

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Table 4.

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Supporting Quotes from Interviews.

ID

Quotes

P4

BEREC is a compromise. EC wanted an euro-regulator. NRAs opposed centralization because proximity to diverse national markets is essential (for example, Germany’s prices are 10 times those of Austria). Countries vary a lot in markets, in how NRAs function … BEREC regulation was part of a package with several dimensions to it. The Council … opposed the European agency. The Parliament, on the other hand, proposed strengthening ERG. Hence, BEREC was the result. NRAs were against EECMA since it did not respect balance of power between EC, member states, and EP. And it didn’t respect the Meroni doctrine. Tension between EC and NRAs is that between uniform regulation versus jealous autonomy. Major change between proposal and final solution: BEREC Office’ smaller in size (150 to 28). Danger was that BEREC Office could turn into an instrument of the EC. Now, there is a balance between BEREC Office and NRAs. BEREC is a compromise between NRAs and EC. EC was disappointed with slow harmonization and proposed a Euro-regulator (i.e. EECMA). NRAs reacted defensively to preserve ‘status quo’. They first conveyed a unitary message and then contacted their ministries. The compromise is rather a compromise [of the EC] with the Council (and to a lesser extent probably with EP), than a compromise with the NRAs.

P5

P7 P10 P10

P12

P13

change. The final organizational solution (i.e. BEREC in its current configuration) is nor the result of a prescribed blueprint neither the ideal expected result that the entities playing a role in the process would have chosen if they were to decide in isolation. In contrast, an evolutionary perspective does not seem applicable with respect to BEREC, since neither NRAs nor BEREC itself compete with the EC for survival. Nor do NRAs compete among themselves for survival. Although one may argue that, ideally in a globalized world economy, NRAs compete to attract business and to make their national regulated markets more competitive, this they do not do within, or through, the BEREC network. BEREC itself does not have competitors and the struggles related to it have to do with deciding its form rather than its survival. At the other end, the life cycle model is not either appropriate since there seems to be no inevitable process of growth and decay. The findings do show an evolution towards a more centralized and formalized structure
as Provan and Kenis (2008) predict
but no intrinsic code determining BEREC’s life cycle seems at play. BEREC’s development appears to be, therefore, the result of a constructive process.

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Lastly, teleology seems to come at play in that it is the macro-framework in which the dialectical processes are nested. As the insights gathered from the case’s documents and interviews show, the EC was dissatisfied with the current state of affairs at some stages. More concretely, there appears to be two specific moments in time where the European Union in particular revises the European strategy of regulatory harmonization of electronics communication. In these two moments
2002 and 2006
the EC proposes changes to IRG and ERG, respectively. The proposals were to bring the governance of the network closer to the envisioned goals of the EC. During these moments, first ERG is created (based on IRG) in 2002, and later the dialectical process between EC ERG is unleashed, eventually resulting in BEREC.

The Grand Dialectic of BEREC’s Creation The dialectical process can be reduced in analytical terms as a tension between the hierarchy as a co-ordination mechanism advocated by the EC at one end, and the most informal and decentralized network form advocated by NRAs (and the Council) at the other end. Using Provan and Kenis’ (2008) framework, Table 5 summarizes the different proposals and forms advocated for and (in some cases) implemented. Fig. 2 illustrates this dialectic dynamic and nests it within a teleological process. The first bold move towards a more formalized network occurred in the EC’s 2000 Directive proposal. The EC proposed a formal advisory network whose secretariat would be provided by the EC itself. The Council rejected the entire idea of a formal network of NRAs
formally justifying this on legal arguments, but actually looking to maintain maximum national autonomy regarding the telecoms market (Simpson, 2011). The EC, however, did not give up and in 2002, through its decision 2002/627/EC, set up ERG as an advisory group to the EC. ERG is essentially the name that IRG adopts when it officially responds to an EC request. In such circumstances, the EC participates in ERG but has no vote. The second and central trigger for subsequent enhancements and formalizations of ERG occurs in late 2006, after the EC writes to ERG announcing it is planning to request stronger powers to impose remedies on NRAs. In other words, the EC aims at being able to impose regulations that NRAs will have to enforce and to block regulations by NRAs. In essence, its proposal aimed at subordinating NRAs for certain issues.

Evolving Governance Forms of the European Telecoms Regulatory Network. Co-Ordination Activities

IRG HCLC (2000 EC Proposal) 2002 Directive ERG (2002-2007) EC letter 26/11/2006 Proposal I/ERG w/secretariat (2007-2010) EECMA (Proposal) BEREC

Decentralized (rotating lead member) Centralized
Decentralized
rotating lead-member Centralized Centralized (NAO) Centralized (Agency) Centralized (NAO)

Member Interaction

Power Balance

Formalization of Form Low

Cost

Multilateral

Symmetrical

Distributed

Bilateral (via EC)
Multilateral

Asymmetrical (in favour of High EC)

Symmetrical Low

Concentrated (EC)
Distributed

Bilateral (Via EC) Bilateral (via NAO) Bilateral (via Agency) Bilateral (via NAO)

Asymmetrical (in favour of High EC) Symmetrical Medium

Concentrated (EC) Distributed

Asymmetrical (in favour of High Agency) Symmetrical High

Concentrated (EC) Concentrated (EC)

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Table 5.

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Execution: 2010…

IRG

Evaluation, Modification, Goal-setting: 2006-2009

BEREC

EECMA IRG/ERG+ EC letter

Execution: 2002-2006

IRG/ERG

Evaluation, Modification, Goal-setting: 2002

IRG/ERG

HLCG

Execution: 1997-2001 IRG Participant-lead Network

Fig. 2.

NAO-lead Network

Hierarchy

The Dialectics of BEREC’s Governance Form.

The EC states it is disappointed with the limited progress in harmonized regulations of telecom markets around Europe (Table 6). The first response by IRG/ERG is to upgrade their structure, setting up a secretariat in Brussels. Thus they move decidedly from a rotating participant-lead governance to an NAO governance form. Since IRG’s inception in late 1990s, the governance of the network had been shared by its membership. One NRA chaired the IRG and its ‘virtual’ secretariat, composed of a few (up to 4) officers, was distributed: each officer working at its home NRA. By early 2009, IRG/ERG had a four-man team set up in Brussels: a Head, two Juniors Officers and an Administrative Aid. In addition this enhanced IRG/ERG exchanged several letters with the EC to argue for and justify its progress and impact so far. The most relevant illustrations of this correspondence are shown in the previous table. However, the EC paid little attention to the steps ERG made, and in mid-2007 proposed the Council and EP to set up EECMA, a quasihierarchical European agency, that would in practice trump NRAs. The main difference between a traditional hierarchy and EECMA is that in the latter the NRAs would have some say in its decision-making

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Table 6.

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Correspondence Between EC and ERG.

26/11/2006: EC to ERG • ‘You are aware about the serious concerns of many market participants, which are shared by the European Commission, about the present lack of consistency as regards the application of the regulatory framework’. • ‘I envisage, as indicated to you at our meeting, to include in the future regulatory framework a clause allowing the Commission to: (1) request that a national regulatory authority replaces an inappropriate measure by a regulatory action that will remedy the competition problem effectively; (2) request a national regulatory authority to undertake an analysis of a market and/or to adopt a remedy within a reasonable time-frame’. • ‘The institutional set-up of the ERG does not allow it to achieve, even with the best intentions, a consistent application of remedies or a common regulatory approach to crossborder issues’. 18/01/2007: ERG to EC • ‘In Bratislava, NRAs agreed to establish a permanent … Chairman’s Secretariat, composed by two to four junior and middle officials seconded by NRAs’. 30/01/2007: EC to ERG • ‘Even though this improvement in the work of the ERG is welcome …, we believe that the present status of the ERG as mere advisory body to the Commission
working mainly on the basis of consensus, without powers of enforcing its decisions and without guaranteed transparency and accountability, in particular towards the European Parliament
could become a constraint on its evolution in the longer term’. 27/02/2007: ERG to EC • ‘ERG maintains its opposition to the Commission’s … proposal of a … ‘veto on remedies’ plus the power to impose remedies on NRAs … on the grounds of subsidiarity’.

bodies: in the Board of Regulators all and only NRAs would have one vote each, but in the Administrative Board the EC would enjoy 50 per cent of the weight while the Council the other 50 per cent. This in essence, would have given the EC majority in the Administrative Board. NRA felt EECMA proposal as a real threat to their status quo and once the EC proposed it, NRAs went off to mobilize support in the Council and European Parliament. NRAs responded with several strategies to the threat of losing power and autonomy in favour of a European authority. They influenced the EU’s legislative process. The different NRAs contact their respective permanent representatives of the Council of the EU as well as the major groups of the European Parliament. This strong reaction, as shown in Table 7, was reported by a majority of our interviewees who pointed out the determination of NRAs to block, by all possible means, the EC attempt to agencify the European telecommunications market.

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Table 7. ID

Quote Supporting Findings re: NRA Mobilization. Quotes

NRAs lobbied to remain independent. In the council we contacted the permanent representation. We also contacted the parliament. P4 All NRAs decided to go back and collect as much arguments as possible against EC proposal. The resistance was channeled through to the EU’s political dimension. The process took a long time. P5 Council did not see with good eyes a greater role for the Commission and did not understand that the agency would have been independent from the Commission. NRAs and powerful national champions influenced the Council. P10 ERG reacted badly to proposal–It was not a good proposal–. First, ERG reacted with a joint communications effort and then NRAs lobbied their MEP. P12 NRAs reacted defensively to preserve ‘status quo’. They first conveyed a unitary message and then contacted their ministries.

P1

Intra-Network Dynamics BEREC, a revamped ERG, was born in this turmoil. As NRAs joined forces to block the EC’s proposal and to create a governance form that safeguarded the distinct NRA’s turf, they also maneuverer trying to influence the internal decision making of BEREC. The network form had prevailed over the hierarchy (or authority) thanks to the framing and mobilizing activities of the NRAs. Regulation 1211/2009 established the main procedures applicable to BEREC: membership, the importance of its contribution, and minimal rules. The regulation stated that ‘NRAs and the Commission shall take the utmost account of any opinion, recommendation, guidelines, advice or regulatory best practice adopted by BEREC’. It also gave BEREC an Office, with legal personality as a Community body, to support its work, and established a Board of Regulators. The regulation creating BEREC left it up to the network members to define in detail its decision making, concretely the rules of procedure setting out in detail the arrangements governing voting. This resulted in some tough negotiations among NRAs to settle on the small print of the decision making. The defensive opposition to the EC was shared by all NRAs as the previous section states. The NRAs opposition to yielding power over to the EC was explicitly stated by all interviewees. However, NRAs also recognized the need to harmonize regulations across Europe as well as the need to share information and knowledge among NRAs. These uniting factors did not, nonetheless, eliminate the fact that NRAs are extremely different

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among them. As interviewees recognized, differences were evident not only in language, culture and size, but also, and more important, in their degree of independence from national governments and in their national markets structures. Thus, when defining the procedures for voting, the NRAs strongly negotiated among themselves. Table 8 quotes illustrate this intranetwork dynamics. In essence, a group of NRAs challenged the status quo of ERG and rejected the direct transposition onto BEREC of ERG’s rules regarding voting. At ERG, decisions were taken on the basis of simple majority of ‘yes’ votes over ‘no’ votes. Abstentions, both explicit and implicit (i.e. when a member present did not emit a vote, either yea, no, o abstention), were not taken into account. BEREC’s Board of Regulators, on the other hand, according to its rules of procedure requires 2/3 majority of ‘yes’ votes of total number of members. This change in voting was championed by a group of NRAs dissatisfied with the status quo. According to interviews, dissatisfied NRAs believed that ERG treatment of abstentions and its majority threshold benefitted the then-stronger NRAs since abstentions were numerous
either because of lack of capacity or group pressure (most voting was done openly). One of the dissatisfied NRAs proposed that decisions be taken by consensus. Facilitated by another dissatisfied NRA, the final proposal adopted requires 2/3 explicit and real majority. Fig. 3 illustrates the dialectal process that occurred in defining the specific rules of procedure of BEREC. In essence the status quo voting procedure
simple majority, where abstentions did not count
was challenged by an antithesis: consensus. The resulting synthesis was that all the decisions required a 2/3 real and explicit majority of all members.

Table 8. ID

Quotes Supporting the Intra-Network Dialectics. Quotes

BEREC’s decisions must be take in ‘utmost’ account. That’s why it was important to position oneself well in BEREC. P11 [NRA X] was in favor of comitology procederes, [NRA Y] proponed decision-making by consensos. [NRA Z] proponed BEREC’s current system as a middle course between [NRA X] and [NRA Y]. P10 BEREC procedures were debated lively. Not a controversial issue anymore. New responsibilities of BEREC needed more formal decision-making: The discussion made explicit the tension between good governance and effectiveness of decision-making procedures.

P1

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T1

Status Quo Voting • Simple majority • Abstentions don䇻t count

Alternative Voting • Consensus

T2

Current Voting • 2/3 explicit majority of all members

T3

Fig. 3.

Internal Dialectics Regarding Voting Procedures.

DISCUSSION We here discuss our findings in relation to the literature. We discuss the process theories applicable to this case, their relationship and nesting, the congruence of our findings with predictions of network governance design, and relate our findings to European regulatory politics literature. As explained in the findings’ section, a dialectical process best represents the overall dynamics of BEREC’s development. Thus, although cyclical approaches to network’s development are well recognized in the literature, the paper ties up with those streams in the literature proposing that other type of processes are feasible and offer full explanatory potential for the analysis of network development (Popp, MacKean, Casebeer, Milward, & Lindstrom, 2013). On the one hand, the dialectical process is visible in the tension between the two opposing forces represented by the EC and the NRAs (these latter joining forces with the Council and, to a lesser degree, the European Parliament). This recalls the out-group/in-group conflict proposed by the sociological literature. It is well known that being under attack or in front of a common enemy may unite parties: Out-group conflict is associated

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with in-group cohesion (Astley & Van de Ven, 1983; Coser, 1956). This phenomenon is clearly noticeable in IRG/ERG, and later in BEREC, where NRAs unite to counter the EC. This may be particularly interesting in mandated networks, where parties constituting the network may not be the ones in charge of designing and defining the network characteristics. Thus, a dialectical tension may be expected between network members and the party in charge of designing or deciding on the network characteristics. Interestingly, in mandated networks, such as regulatory networks, strong mobilization and framing activities may be expected to occur prior to full formation or crystallization of the network. These contrasts with the network management literature where framing and mobilizing of the network occur continually (Agranoff & McGuire, 2001; Saz-Carranza & Ospina, 2011). This is understandable since mandated networks may require an external non-member to modify the network’s structure (Herranz, 2008). We also find, on the other hand, a second dialectical tension, this time fully comprised within the network itself, endogenous in nature. As soon as ERG is turned into BEREC, with more responsibilities, decision making becomes important. IRG/ERG internal decision making was not a contested issue among NRAs, since it was essentially an information-sharing network. However, when it turns into BEREC, NRAs do get heavily involved in framing internal procedures. As BEREC turns into a quasibinding advisory network, its decision making
or in other words, how BEREC stands by a proposal
becomes central to NRAs. At this point a second negotiation occurs between those NRAs that wanted to translate the decision-making procedures of ERG over to BEREC and those NRAs that wanted a reform of the decision-making procedures. Thus, beyond the circumstances (contexts, interests and aims) present at the formation stage of the network, network governance structures can be seen as a compromise to balance tasks, networks’ members’ safeguards and resources dependencies among members. Also related to the dialectical process described, we propose that the process is triggered by the evaluative stage of the EC’s teleological cycle. That is, the tension arises when in 2006 the EC evaluates the harmonization of the regulations of the telecoms markets in Europe and decides to propose a radical new system, that is the EECMA. Van de Ven and Poole (1995) call for researchers of organizational processes to uncover and explain phenomena which the process theories leave unanswered. All process theories are inherently incomplete. Dialectical process theories cannot explain per se why an antithesis arises and thus generates tension
dialectics can only

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explain the developmental characteristics due to the clash between thesis and antithesis. The teleological prism applied to the EC does explain why it comes up with an antithesis to the then current status quo, unleashing the dialectical tension. (What teleological theories cannot explain per se, though, is what determines that the EC launches an evaluation and redesign in 2006: why not earlier, or later?). Thus, in a mandated network such as the one studied, the origin of the dialectical dynamics of change may lie in an external actor (the one mandating the network or in charge of designing the mandated network). The external actor may decide that the governance form of the mandated network is unsatisfactory and propose a change. It is reasonable to expect a reaction by network members to the proposal. In other words, the governance form might be seen as provisional cause although and agreement might be reached, when context, actors, interests or/and dependencies change, a new set of governance mechanisms will be settled as a result. Our findings suggest that change in inter-organizational relations, such as goal-directed network, might be inherently related to two main drivers. On the one hand, the actors try to avoid uncertainty and to seek stability (Koberg & Ungson, 1987) by shaping the governance of the electronic communications regulatory network. On the other hand, networks members, specially the mandatory party, make and foster strategic choices (Lewin, Weigely, & Emery, 2004) to position themselves within the fast changing EU regulatory co-ordination environment. As shown, however, changes are not only the result of potentially strategic choices by more or less powerful players in the network but also the consequence of a process of negotiation of multiple and, sometimes, contradicting choices. As mentioned, changes in the form of governance of the European telecoms regulatory network is in agreement of Provan and Kenis (2008) life cycle linear incremental predictions. They argue that networks will tend to formalize and delegate co-ordinating activities as time evolves. In fact, our findings do coincide with their temporal predictions as with their design propositions. If IRG and BEREC are compared, their determining factors for network governance form apply. Thus, IRG seems to have high and distributed trust among members, moderate to high number of members (27), high goal consensus (to share information among NRAs), and a low need for network-level competences. Such characteristics would call for a participant-shared governance form. In comparison, BEREC seems to have moderate trust (and intra-network activity monitored by the NAO), moderate to high number of members (27), moderate goal consensus (all NRAs agree that they have to advise

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the EC when requested but the content of BEREC’s recommendations may be highly contested), and a need for high network-level competences (due to its increased responsibilities). BEREC’s governance form is then also congruent with Provan and Kenis (2008). EC favoured a European regulatory agency (Kelemen & Tarrant, 2011; Levi-Faur, 2011). According to Levi-Faur (2011), BEREC is the compromise arrangement between the Commission and the NRAs. On the contrary, Keleman and Tarrant (2011) proposes that BEREC is a compromise between the EC and the Council. Nevertheless, Keleman and Tarrant (2011) do acknowledge that ‘once created, NRAs may become relevant actors in the debates over the allocation of powers, and they generally seek to maximize their own authority, either by resisting delegation to supranational bodies or by seeking to repatriate authority that had already been delegated to supranational authorities’. Both authors agree that the ‘institutional ecology is shaped by the preferences of the relevant political actors, mediated by the rules of decision making in the relevant sectors’ (Kelemen & Tarrant, 2011) but they differ in who are the relevant political actors (the Council or NRAs). From our interviews, NRAs consider themselves as key political figures in countering the EC’s proposal, and recognize that they got involved in political activity to achieve their goal. In fact, as early as in the 1999, the EC officially stated in its public consultation report that NRAs (not the Council) had objected to the creation of a formal NRA network (the HLCG). However, all NRA representatives recognized that they worked via the Council, who was neither very supportive of the EC’s proposal.

CONCLUSION In this paper, we set out to explore the process by which public networks evolve in time. Specifically, we focused on how the governance form evolved in a European regulatory network. Based on organization theory and public management literatures, we identify a dialectical dynamic triggered by teleological evaluation cycles. We find that the network’s governance system is determined by the dialectical tension between network members (NRAs) and an external very influential body (the EC). We also identify a second dialectical tension endogenous to the network: that between the status quo and an alternative group of members. The first tension unifies the group in the

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classic external conflict-internal cohesion. The latter tension exists among members. The tensions are triggered by evaluations carried out by an external actor (the EC) with enough capacity to influence the network’s governance form. In general, the process observed confirms the propositions that predict a formalizing of the governance as the network grows older. However, the development is neither lineal nor continuous. We also point out how the form evolves as more responsibilities are assigned to the network. And we also see the effect of the ‘shadow of hierarchy’ on the levels of co-operation within the network. Limitations and Further Research As all studies, this one has various shortcomings. The main one is that we used a single-case study as our empirical material. We justify this due to the exploratory nature of the study, as well as with the depth and richness of the data sought that represented an adequate set in our endeavour to shed light on the development of the governance form of regulatory networks over time. However, a broader analysis of other regulatory networks among network industries at the European Union level will help researchers to establish a more comprehensive picture on the development of the governance form of this specific subset of goal-directed networks. Further research on regulatory networks, change in them and their governance form, will also shed light on the role played by resources dependencies and strategic choice in the context of regulatory co-ordination and how the governance form of networks is affected by any of them.

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89.

PART II EMERGING ISSUES IN NON-PROFIT GOVERNANCE

EMPIRICAL RESEARCH ON NONPROFIT BOARDS: MAIN FEATURES AND DIFFERENCES FROM THE LITERATURE ON CORPORATE AND PUBLIC BOARDS Sonia Moi, Fabio Monteduro and Luca Gnan ABSTRACT Purpose
Recent literature on nonprofit boards of directors has extensively investigated the composition, role, responsibilities, and characteristics of boards. Given the growing number of studies on nonprofit boards, which added new impulse to the debate on the role and characteristics of these players, it is time to analyze the state of the art and systematize the current knowledge. On the other hand, despite the presence of some literature reviews, a research comparing the debate among the nonprofit, private, and public sectors is still lacking. Using Gabrielsson and Huse’s (2004) framework, we wanted to identify factors that can influence research on nonprofit boards and compare our results with existing studies on private and public sector.

Mechanisms, Roles and Consequences of Governance: Emerging Issues Studies in Public and Non-Profit Governance, Volume 2, 127
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Methodology/Approach
We conduct a systematic literature review, selecting empirical articles published in international scientific journals from 1992 to 2012. Findings
We found similarities and differences in relation to research on boards among sectors. As a common result, we found that evolutionary studies still remains a neglected area in all of three realms. Finally, whereas input
output studies prevail in the private sector and contingency studies prevail in the public sector, behavioral studies prevail in the nonprofit sector, demonstrating, also, that the sector itself can make a difference in the board’s research. Research Limitations/Implications
This literature review provides some suggestion for further research on boards for all of three sectors. For example, we suggest complementing research on boards on all three sectors, especially in relation to evolutionary studies. Originality/Value of Paper
This paper fills the need to clarify the status of research on nonprofit boards, in order to address scholars in the understanding of the phenomenon. Keywords: Board of directors; nonprofit sector; corporate governance; public sector; systematic literature review

INTRODUCTION Governance in recent years has been an area of interest in research in the private, public, and nonprofit sectors. Clear efforts have been made in order to know, understand, and interpret governance mechanisms, particularly those of the board of directors, as one of the most important part of the governance structure. A board of directors is a governing body existing in many types of organizations, in all for profit, nonprofit and public sector (Zald, 1969). According to Zahra and Pearce (1989), who concentrate themselves on the private sector, boards of directors can assume three critical roles: service role, in other words, a co-optative role in order to getting resources (Pfeffer, 1972; Pfeffer & Salancik, 1978); control role, related to the need to monitor management’s activities and actions and to ensure the representation of shareholder’s interests (Zahra & Pearce, 1989); strategic role, related to the strategic decisional process (Zahra & Pearce, 1989). In this context, given the growing body of research conducted in this field, some authors have proposed various analyses of the literature, aimed

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at identifying the main areas discussed and those into which it would be appropriate to intervene. These authors include Gabrielsson and Huse (2004), who examined the private sector (that will be our framework), Hinna, De Nito, and Mangia (2010), who looked at the public sector, and Ostrower and Stone (2006) and Du Bois et al. (2007), who studied nonprofit organizations. In their review, Gabrielsson and Huse (2004) started with a criticism of the research on boards of directors in the private sector that, since the 1990s, has been influenced by a traditional approach that considers boards to be an isolated “black box.” Therefore, the objective of their review was to test this hypothesis and, at the same time, identify new and alternative lines of research. The articles (a total of 127 items of empirical nature) were evaluated in relation to the emphasis on variables that can influence the board in terms of the context in which the organization operates, internal processes, the behavioral dimension, and relationships between actors as well as the processes of change within the board due to time factors, whether internal and external. In addition to highlighting differences in the research lines among different countries, the analysis confirmed the hypothesis that most studies on boards in the private sector have focused on the “usual suspect” and consider boards to be an isolated “black box” (input
output studies). Research on for-profit boards does not take much into account in terms of aspects related to context or behavior, whereas studies that explore the board from the evolutionary perspective still remain a neglected area, and the authors call for an increase in such areas over time. For the public sector, we cite the recent work of Hinna et al. (2010), whose contribution aims to identify the main theoretical framework used to investigate boards in the public sector following the pattern of the six models of governance proposed by Cornforth (2003) and subsequently identify the main streams of research in the public sector based on Gabrielsson and Huse’s (2004) analysis. The review was performed on 52 articles and provided some interesting results. First, Hinna et al. (2010) determined that the democratic perspective was the theory most widely used in the public sector; in this perspective, the board is seen as an entity that represents the interests of one or more stakeholder groups, and its role is to identify the most appropriate policies for balancing these interests (Cornforth & Edwards, 1999). The authors further showed a substantial difference in the configuration of the principal
agent theory in the private sector (Cuervo & Villalonga, 2000; Jørgensen, 1999). Another difference that emerged between the public and private sectors concerns the stream of research on boards in the public sector. In their review, Hinna et al. (2010) found a predominance of studies focusing on the influence that the context in which the organization operates (internal or external) has on a

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board: the so-called contingency studies; studies that look at the board from the behavioral perspective are less explored whereas input
output (based on the “usual suspects”) and evolutionary studies still remain a neglected area. For the nonprofit sector, we cite two recent works: one by Ostrower and Stone (2006) and one by Du Bois et al. (2007). The first article offers a review of the literature on nonprofit boards in order to identify the main characteristics of boards and their operation, including the composition, relationships between board members and staff, functions, and roles and responsibilities, particularly in relation to the organization’s efficiency. Among the main results of this analysis, Ostrower and Stone (2006) observed how the focus of the research on nonprofit boards has changed over time. In fact, at the end of the 1980s boards were regarded as boundary spanners (Middleton, 1987) between the nonprofit and its environment. Referring to this concept, Middleton (1987) aims to identify all of these actions related to the various exchanges between nonprofit organizations and the external environment in which they operate. Nevertheless, Ostrower and Stone (2006) showed a shift of more recent research towards the identification of the organizational characteristics of boards. In particular, with respect to the composition of nonprofit boards, although research concentrates its efforts on studying what variables influence composition of boards, there is no evidence on “how the composition of boards makes a difference on to nonprofits or the broader communities they serve” (Ostrower & Stone, 2007, p. 420). Moreover, despite several articles that focus their research on the links between board efficiency and organizational efficiency, these authors suggested that those characteristics of nonprofit boards that can make a difference to the organizations they govern or to the environment in which they work are still unknown. The second article by Du Bois et al. (2007) offers a concise review of empirical research on nonprofit boards. They distinguish the articles analyzed as those in which the nonprofit boards are the dependent variable and those in which the nonprofit boards are the independent variable in relation to other variables (such as organizational performance). The results indicate contradictions in both scenarios, especially in relation to the interpretation of the results. Du Bois et al. (2007), supporting Ostrower and Stone (2006), emphasized the existence of a link between nonprofit boards and organizational efficiency, but the causal link between these dimensions continues to remain obscure. Both reviews still leave some open issues, highlighting the need for more investigation about the relationships between boards’ behavior and organizational effectiveness.

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AIMS OF RESEARCH We start our reflections with the differences among public, nonprofit, and for-profit organizations, respectively, “to meet a need in the community or among members rather than earn a profit for owners and shareholders” (Wyatt, 2004, p. 17a) in order to promote an organization’s mission. Moreover, given the specificities of a nonprofit organization’s mission, a board’s role needs to be addressed in order to promote higher ethical behavior (Rhode & Packel, 2009). Given the differences and the peculiarities between the three sectors, research on boards should analyze characteristics from different point of views in order to highlight the specific features of boards into the different types of organizations. If we consider Gabrielsson and Huse’s (2004) work for the private sector and compare their results with those obtained from Hinna et al. (2010) for the public sector, we point out that research on a board changes its perspective with regard to the peculiarities of the sector. Gabrielsson and Huse’s (2004) analysis showed a prevalence of studies focusing on issues related to the independence of a board and a CEO’s level of control (Finkelstein & Mooney, 2003). Research on boards in the for-profit sector is mostly related to the “usual suspects” (i.e., the number of insiders/outsiders on the board, director’s shareholding, board size, and CEO duality). The elements upon which studies in this stream of research are based on finding the right trade-off between board size, board composition, outside/inside members, etc., and the relationship between these aspects and the organizational performance. On the other hand, Hinna et al.’s (2010) research showed a prevalence of studies that correlate boards with the institutional and social context in which they operate (Aguilera & Jackson, 2003). The characteristic of this approach refers to the manner in which the power of the board is under the influences arising from social, regulatory, and environmental contexts in which the organization operates. Considering the specific features highlighted in Ostrower and Stone’s (2006) and Du Bois et al. (2007) works and using Gabrielsson and Huse’s (2004) framework, we want to verify if research on nonprofit boards differs from private and public sectors and what are the reasons for these differences. We suppose that research on nonprofit boards focuses on other variables that, for example, can refer to their ethical behavior. In order to compare research in the for-profit, public, and nonprofit sectors, we use Gabrielsson and Huse’s (2004) framework, which is explained in the next section.

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Thus, we summarize our research questions as follows: • RQ1: What are the commonalities and the differences among the forprofit, nonprofit, and public sectors? • RQ2: What are the reasons for the differences, if any? In the final section, we discuss the possible perspectives for future research based on the results obtained.

FACTORS AFFECTING EMPIRICAL RESEARCH ON BOARDS Possible directions of research on boards can be influenced by a variety of factors. In order to identify these factors and to make possible a comparison among sectors, we adopt as our reference framework Gabrielsson and Huse’s (2004) review, which took into account the origin of the sample, the affiliation of authors, theories, sample size, data collection, methods of analysis, and, finally, the various streams of research on boards. The adoption of this framework allows us to take into account some variables and to combine and compare them, not just with the private sector, but also with the public sector. Hinna et al.’s (2010) review considered part of this framework in relation to theories and streams of research.

Factors Affecting Research on Boards • The origin of the sample refers to the context in which the organizations under investigation are placed. The sample may come from North America, Europe, Asia (etc.), and its origin can affect the research on boards. • The affiliation of the authors refers to the geographical context in which authors operate. In Gabrielsson and Huse’s (2004) analysis, the North American origin of the authors or the North American origin of the sample can affect the research on boards. In fact, they assume that the American research on boards also would be affected by a “publish-or-perish” syndrome, which allows a wide dissemination of “input
output” studies. • The sample size refers to the number of analyzed cases. In their review, Gabrielsson and Huse (2004) distinguished articles in which 20 or fewer cases are analyzed, articles in which the sample is between 21 and 100 cases or between 101 and 300 cases, and, finally, more than 300 cases.

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• The data collection refers to method of gathering variables under investigation, such as surveys. • The methods of analysis refer to the way in which data is analyzed, such as regression factor analysis. In addition to these variables, Gabrielsson and Huse (2004) took into account the theories used such as agency theory, stewardship theory, resource dependence theory, managerial hegemony theory, stakeholder theory, institutional theory, and other theoretical perspectives, such as the legalistic perspective, the social network perspective, or the gender perspective and the stream of research (input
output studies, contingency studies, behavioral studies, and evolutionary studies).

Theories Research on private boards has produced different theories in order to define their characteristics and roles. Among these, we briefly cite: • Agency theory, which, according to Fama (1980), refers to the separation of ownership and control in corporations in order to improve the economic efficiency of the organization. • Stewardship theory, which is different from agency theory, refers not to the separation of ownership and control, but rather to the unity of direction and of strong command and control, which can produce a better result (in terms of returns to shareholders) than those of the separation of ownership and control (Donaldson & Davis, 1991). • Resource dependence theory, which refers to the impact of external resources on organization (Pfeffer & Salancik, 1978). • Managerial hegemony theory, which starts, according to Cornforth (1999), from the assumption that a shareholder can (legally) own and control organizations, but the shareholder cannot control them effectively. • Stakeholder theory, which refers to the management of an organizations in respect to ethics and moral values (Freeman, 1984). • Institutional theory, which refers to the influence of societal institutions on individuals and organizations (Meyer & Rowan, 1977).

Streams of Research According to Gabrielsson and Huse (2004), research on boards can be classified depending on “the emphasis on the context, stakeholders,

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board interaction with the environment, actors, processes, decision making, history, time, change and learning” (Gabrielsson & Huse, 2004, p. 16), identifying in input
output, contingency, evolutionary, and behavioral approaches. They can be briefly described as follows: • Input
Output studies, this stream of research focuses on the so-called “usual suspects,” and it aims to investigate the right balance among board size, board composition, outside/inside members, etc., and the relationship between these aspects and organizational performance. The study of these variables, as reported by Ostrower and Stone (2006), are important in the nonprofit sector in terms of the identification of best composition of boards. • Contingency studies, where the institutional and social context affects boards (Aguilera & Jackson, 2003). Understanding these variables in a nonprofit organization can help boards to intervene effectively in the organizational change. • Behavioral studies, which investigate behaviors, decision-making processes, and relationships within and outside the board. In particular, these studies seek to identify the variables that make boards effective (Forbes & Milliken, 1999) and how board effectiveness is related to the organizational performance. • Evolutionary studies, which includes those studies that explore how changes in the board depend on internal and external variables (Gabrielsson & Huse, 2004). In other words, these studies include the characteristics related to contingency and behavioral studies and use both variables to explain a board’s change processes. All this factors, theories and streams of research, suggest some considerations. First of all, referring to the nonprofit sector, we expect to find that research on boards is not significantly related to origin of the sample or the affiliation of authors (or the other variables), but, regardless by these, is related to the need to identify the specificities of boards within NGOs. These specificities reflect the characteristics of nonprofit organizations and, at the same time, can address research on nonprofit boards. It is not possible to understand the nonprofit sector without considering “the substantive values and ethics that people hold
that is, the qualities of life they want to realize that are being achieved through profit-seeking or governmental organizations” (Rothschild & Milofsky, 2006, p. 137). The second point is related to the use of theories. Research on private and public boards generally claims one of these theories, either as a unique theory or in combination with the others. Referring to the nonprofit sector,

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we expect to find articles with a strong theoretical basis. Given the similarities between research on the private (Gabrielsson & Huse, 2004) and public sectors (Hinna et al., 2010), we expect to find that a large number of articles leans on agency theory, resource dependency theory, stakeholder theory, or stewardship theory. These theories are relevant in governance research (Donaldson & Preston, 1995; Eisenhardt, 1989; Hillman, Withers, & Collins, 2009). This review will show and compare the most prevalent theory used in all three sectors. Moreover, given the differences between the private (Gabrielsson & Huse, 2004) and public sectors (Hinna et al., 2010), we expect to find significant differences between sectors. We believe, in fact, that the sector is the most important variable in conducting research on nonprofit boards. That is because of the different needs of these types of organizations (Rothschild & Milofsky, 2006; Speckbacher, 2008). A nonprofit organization, in fact, features a predominant ethical perspective that is different from that of the other sectors and presents specific and unique characteristics, especially in relation to governance (O’neill, 1992). Furthermore, we cite another important variable: a nonprofit’s reputation, which drives (or has to) a board’s behavior (Bradshaw, Murray, & Wolpin, 1992; Radbourne, 2003). Therefore, we conduct our work in order to identify and explain how the sectors’ differences affect the research on boards. All these considerations lead us to think that a board’s behavior and relationship with its actors is the most studied variable in research on nonprofit boards and the possible explanation for contingent differences. Summarizing this hypothesis and, in light of this discussion, we seek to identify which factors affect research on nonprofit boards and whether significant differences exist between sectors. For example, as we states above, we analyze whether the affiliation of the authors, the origin of the sample, and the localization of the journal affect the theory used or the stream of research or if they even affect the size of the sample or the methods of analysis.

METHODS As defined by Briner and Denyer (2010), “systematic reviews have become an essential tool of evidence-based practice” (p. 337) in order to collect and systematize existing literature on the topic under investigation. Such reviews are based on a set of principles (Briner & Denyer, 2010), including: • Systematic: reviews are conducted through a method designed in order to respond to a specific evidence;

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• Transparency: this is guaranteed by the clear explanation of the methodology; and • Summary: reviews are necessary to reorganize in a structured manner the results of the analysis in order to compare the various fields of research using a variety of methodologies. In line with these principles, and according to the methods described in Fink (1998) and Creswell (2009), we carried out the following steps.

First Phase To conduct the search, we used two databases: Science Direct and Business Source. Next, we identified the keywords “board of directors,” “boards,” “top management team,” “tmt,” “trustees,” “voluntary sector,” “nonprofit,” and “not for profit,” “NGOs” using the terminology present in the articles we used as a theoretical background (Du Bois et al., 2007; Gabrielsson & Huse, 2004; Hinna et al., 2010; Ostrower & Stone, 2006). We put into the string a various combination of the above-mentioned keywords, such as “boards” AND “nonprofit,” or “boards” AND “voluntary sector” without any restriction. The first result of the search for all this combination gave us a large number of articles, as summarized in Fig. 1.

Second Phase We decided to restrict this first search consider only articles published in international scientific journals from 1992 to 2012. The early 1990s represent the separation between an “old” and a “new” approach on nonprofit board research (Ostrower & Stone, 2006). Then, we choose to limit our analysis to the articles specifically regarding nonprofit boards. This has allowed us to limit the quantity of articles found in the first phase, as reported in Fig. 2. Business Source

Science Direct

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Fig. 1.

Articles Found. Source: Our elaboration.

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Fig. 2.

Business Source

Science Direct

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Results of the Second Step. Source: Our elaboration.

Third Phase At this point, we analyze the 190 articles in order to identify: ’

the clear relevance of the article with respect to the topic of the characteristics of boards, such as composition, roles, and specificities; ’ the research methodology of the articles, selecting only the empirical ones, in order to compare results with Gabrielsson and Huse (2004) and Hinna et al. (2010). At the end of this phase, we choose 68 articles as the bases of our review. Final Phase Thus, we conduct the analysis of the 68 articles using the variables that, as previously described, might affect directions of research on boards. In particular, we classified articles based on the affiliation of authors, origin of samples, localization of the journal, sample size, methods of analysis, theory, and streams of research in order to respond adequately to our research questions.

RESULTS The analysis of the 68 selected articles enabled us to identify journals that contained the largest number of studies on nonprofit boards. The following table provides a summary of the journals with the largest number of such articles: As shown in the Table 1, the research on nonprofit boards are mainly published in specialized journals on the nonprofit sector (such as Nonprofit Management and Leadership, Nonprofit and Voluntary Sector Quarterly), and less in governance specialized journals (such as Corporate Governance).

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Table 1.

Journals Containing the Bigger Number of Articles about Nonprofit Boards.

Title of the Journal

n Percentage

Nonprofit Management and Leadership Nonprofit and Voluntary Sector Quarterly Corporate Governance: An International Review Public Administration Review Journal of Business Ethics American Review of Public Administration Sport Management Review Journal of Sport Management Voluntas: International Journal of Voluntary and Nonprofit Organizations

27 6 5 3 2 2 2 2 1

39.71 8.82 7.35 4.41 2.94 2.94 2.94 2.94 1.47

Localization of the Journal United States United States United Kingdom United States European Union United States Australia
New Zealand United States United States

Source: Our elaboration.

Localization of Journal We found a clear prevalence of articles published in scientific journals localized in the United States (about 70%), while European journals represents about 25% of the total. This shows a significant difference between journals located in the United States and those located in Europe. Only two journals were located in Asia. This brief analysis demonstrates that this issue is still dominant (or more common) in the United States, but less relevant elsewhere. Despite this result seems consistent with the findings of Gabrielsson and Huse (2004), if we consider the focus of the research, our findings differ substantially from those of Gabrielsson and Huse. In fact, though the prevalence of publications in journal located in the United States, we not found a large number of input
output studies; this allow us to reject Gabrielsson and Huse’s (2004) hypothesis based on the “publishor-perish syndrome.” Table 2 summarizes the results.

Affiliation of Authors We found that the majority of scholars were from North America (about 68% of all authors), highlighting a clear gap between North American authors and European authors as well as those from other areas. In fact, only nine studies were by Australian authors (about 13%), seven studies

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Table 2.

Localization of the Journal.

Localization of the Journal

n

Percentage

United States United Kingdom Europe Asia Australia
New Zealand

47 10 7 2 2

69.12 14.71 10.29 2.94 2.94

TOTAL

68

100

Source: Our elaboration.

Table 3.

Affiliation of Authors.

Affiliation of the Authors

n

Percentage

North America United Kingdom Europe Middle East Asia Australia
New Zealand Others

46 4 3 2 3 9 1

67.65 5.88 4.41 2.94 4.41 13.24 1.47

TOTAL

68

100

Source: Our elaboration.

(about 10%) were by European authors, three studies were by Asian authors, and one study was by two authors with radically different origins (Table 3). By comparing data concerning the localization of the journal and affiliation of the author, we found that studies realized by European authors are published mainly in journals located in Europe (6 of a total of 7 cases), but European journals tend to publish studies realized both by North American and European authors (among the 17 articles, 7 were by authors from the United States and 4 from New Zealand). Meanwhile, journals located in Asia tended to publish studies realized by authors from the same region. These results appear consistent with those obtained by Gabrielsson and Huse (2004), who found that authors from North America were most prevalent (about 80%), suggesting that research on boards is most developed in this region. However, the prevalence of North American scholars is not

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related to the focus on input
output studies, confirming that there are other explanations behind the differences across different sectors. Moreover, research on nonprofit board in shows a relatively greater presence of non-American scholars, and this contributes to making debate more varied.

Origin of Sample Consistently with the results thus far, the analysis showed a prevalence of studies on North American nonprofit organizations, representing 68% of the sample. European organizations represented only 12% of the sample, Australian organizations represented 13%, and Asian organizations accounted for about 4% of the total sample (Table 4). Once again, our results are consistent with those of Gabrielsson and Huse (2004) for the private sector, in which the North American sample represented about 80% of the total. Comparing data concerning the localization of the journal and the origin of the sample, we found a similar situation as in the previous case (localization of journal and affiliation of author).

Sample Size We did not find any substantial differences among size classes. The intermediate class prevails, with about 30 percentage points, where the analyzed sample is between 100 and 300 cases. About 28% of the articles have higher sample sizes, which include studies of more than 300 analyzed cases, while about 23% of articles analyze fewer than 20 cases (Table 5). This result is Table 4. Origin of Sample. Origin of the Sample

n

Percentage

North America (United States/Canada) United Kingdom Europe Middle East Asia Australia

46 4 4 2 3 9

67.65 5.88 5.88 2.94 4.41 13.24

TOTAL

68

100

Source: Our elaboration.

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Table 5.

Sample Size.

Sample Size

n

Percentage

Until 20 cases Between 20 and 100 cases Between 100 and 300 cases More than 300 cases

16 13 20 19

23.53 19.12 29.41 27.94

TOTAL

68

100

Source: Our elaboration.

somewhat different from that found by Gabrielsson and Huse (2004). In both cases the dominant class is the intermediate (approximately 50% for the private sector, compared to 30% for the nonprofit sector), whereas the biggest difference relates to the class with the lowest number of analyzed cases: 3% in the private sector compared to 23% in the nonprofit sector. Similar to Gabrielsson and Huse (2004), our analysis does not show any significant differences in relation to the size of sample and localization of the journal, and not shown a relation with the stream of research.

Methods of Analysis We classified the analyzed articles as quantitative or qualitative. About 70% of articles used quantitative techniques (mostly regressions, no cluster analysis, etc.), while the remaining 30% of articles used qualitative techniques, such as case studies, or used qualitative techniques to analyze empirical data derived from questionnaires (Table 6). No substantial differences occurred between the use of qualitative or quantitative techniques related to the affiliation of the author, journal, and localization of origin of samples. In the private sector, quantitative methods are most often used. Only about 4% of the analyzed articles use qualitative techniques, and these studies were included primarily in journals in Europe.

Theory Most of the analyzed articles (about 87%) had a strong theoretical basis (see Table 7). Only about 13% of articles claim no particular theory, but are rather based on different assumptions derived from the literature.

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Table 6.

Methods of Analysis.

Methods of Analysis

n

Percentage

Quantitative Qualitative Mixed

48 19 1

70.59 27.94 1.47

TOTAL

68

100

Source: Our elaboration.

Table 7.

Theory/Perspective Used.

Theory/Perspective

n

Percentage

Agency theory Resource dependency theory Social network perspectives Legalistic perspective Institutional theory Stewardship theory Stakeholder theory Gender and diversity theory No theory Others

17 14 1 0 9 6 7 4 9 32

25.00 20.59 1.47 0.00 13.24 8.82 10.29 5.88 13.24 47.06

TOTAL

99

100

Source: Our elaboration.

About 25% of the analyzed articles used agency theory (17 articles); in only 5 of these 17 cases, agency theory is used as the only theory, whereas in the other 12 cases, it is used in combination with other theories (e.g., resource dependency theory, stakeholder theory). In about 65% of cases, agency theory is used in research in which the authors and sample are from North America. In the private sector, agency theory is the most used theoretical basis, but it is used more than twice as often with respect to the nonprofit sector (approximately 54% for the private sector compared to 25% for the nonprofit sector). Resource dependency theory is widely used in the nonprofit sector as well (approximately 20% of cases), either alone or in combination with other theories (compared to only approximately 14% of cases in the private sector). We found a wide use of theories different from those most frequently used for the analysis of private sector governance. These theories

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represent 25% of cases by themselves (approximately 47% when considered in combination with classical theories) and include leadership and life cycle models, among others. In addition to these theories, other theoretical perspectives are also adopted, such as the legalistic, the social network or the gender perspective. These perspectives are less frequently used. For example, the gender perspective is used in an almost 6% of cases (considered alone or in combination with other theories/perspectives), and the social network perspective is used in one case and the legalistic perspective is never adopted; however, in the private sector, the social network perspective occurs in 13% of cases. The review of boards in the public sector (Hinna et al., 2010) shows that 40% of cases used at least one of the classic theories discussed thus far (i.e., agency theory, resource dependency theory, etc.), whereas 25% of the cases did not clearly state a theory and 35% of cases the theories are different and relate primarily to the debate on public governance. In all three cases, therefore, classical theories are widely used with board; the agency theory is the most widely used, especially in the private sector and, in all cases, there is a low percentage of articles in which theory is not declared.

Stream of Research In order to respond to our research question to discover the main stream of research of studies on nonprofit boards and understand differences among private, public, and nonprofit sectors, we classified the articles according to “emphasis that was put on context, stakeholders, the board’s interaction with the environment, actors, process, decision making, history, time, change, and learning” (Gabrielsson & Huse, 2004). After the analysis of the results obtained by Gabrielsson and Huse (2004), which found a prevalence of input
output studies, and those obtained from Hinna et al. (2010), who found a prevalence of contingency studies, our starting hypothesis is that the sector is able to influence the stream of research. Given the particularities of the nonprofit sector and the attention in nonprofit organizations on ethical and responsible issues, we expected to find a number of articles related to behavioral studies. Our results confirmed this hypothesis while also demonstrating a difference with the review of the literature on boards in private and public sectors. The results will be discussed in the following sections (see Table 8 for a synthetic representation of the results).

#

Contingency Focus

Main Results.

144

Table 8. Contingency Studies 1. Steane and Christie (2001) 2. Guo (2007) 3. Iecovich (2005) 4. Brower and Shrader (2000) 5. Taylor and O’Sullivan (2009) 6. Brown and Iverson (2004) 7. Eeckloo, Van Herck, Van Hulle, and Vleugels (2004) 8. Abzug and Galaskiewicz (2001) 9. Dart et al. (1996) 10. Bradshaw (2009) 11. Golden-Biddle and Rao (1997) 12. Luoma (2010) Input
Output studies

Evolutionary Studies 1. Cornforth and Edwards (1999) 2. Reid and Turbide (2012) 3. Abzug (1996)

1. Bauer (2009) 2. De Andre´s-Alonso, Azofra-Palenzuela, and Romero-Merino (2010) 3. Gazley, Chang, and Bingham (2010) 4. Alexander and Lee (2006) 5. Brickley, Van Horn, and Wedig (2010) 6. Callen, Klein, and Tinkelman (2003) 7. Aggarwal, Evans, and Nanda (2012) 8. Olson (2000) 9. Siciliano (1996)

1. Ja¨ger and Rehli (2012) 2. Radbourne (2003) 3. O’Regan and Oster (2005) 4. Coombes et al. (2011) 5. Mordaunt and Cornforth (2004) 6. Parker (2007) 7. Herman and Renz (2004) 8. Cornforth (2001) 9. Parker (2003) 10. Chen (2008) 11. Bhardwaj and Vuyyuri (2005) 12. Herman, Renz, and Heimovics (1997) 13. Herman and Renz (2000) 14. Yeh, Taylor, and Hoye (2009) 15. Hoye and Cuskelly (2003) 16. Bradshaw et al. (1992)

Behavioral studies

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Empirical Research on Nonprofit Boards

17. Brown (2005) 18. Hoye (2004) 19. Hoye (2006) 20. Wright and Millesen (2008) 21. Herman and Renz (1998) 22. Iecovich (2004) 23. Holland (2002) 24. Harrison and Murray (2012) 25. Green and Griesinger (1996) 26. Nicholson, Newton, and McGregor-Lowndes (2012) 27. Holland and Jackson (1998) 28. Bradshaw, Murray, and Wolpin (1996) 29. Zimmermann and Stevens (2008) 30. Daley, Netting, and Angulo (1996) 31. Inglis and Cleave (2006) 32. Du Bois et al. (2009) 33. Ferkins and Shilbury (2012) 34. Lai (2009) 35. Stephens, Dawley, and Stephens (2004a, 2004b) 36. Brown (2007) 37. Preston and Brown (2004) 38. Miller (2002) 39. Stephens et al. (2004a, 2004b) 40. Brudney and Murray (1998) 41. Inglis and Weaver (2000) 42. Inglis, Alexander, and Weaver (1999) 43. Gill, Flynn, and Reissing (2005) 44. Inglis (1997) Source: Adapted from Gabrielsson and Huse (2004) and Hinna et al. (2010).

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Input
Output Studies According to the criteria adopted by Gabrielsson and Huse (2004) and Hinna et al. (2010), we classified studies as input
output when they relied on “the usual suspects” (Finkelstein & Mooney, 2003). We classified nine articles (about 13%) into this category. These articles analyze the composition of the board in terms of how gender representation, board configuration, size, etc., affect the performance of the organization. It is interesting to note that the origin of the author and the sample is always the United States (except for one case in the EU) and that the prevailing theory (five cases out of nine) is the agency theory. This result is similar to that obtained by Hinna et al. (2010) for the public sector (only about 6% of the articles pertain to that stream of research), while substantially different from that found by Gabrielsson and Huse (2004), who find 99 items of 127 (approximately 77%) related to this approach. Contingency Studies Following Gabrielsson and Huse (2004), we classified those studies in which the boards’ power depends on the context surrounding the organization as contingency studies. We found 12 articles in this category (about 18%). In these studies, the legislative context (i.e., Luoma, 2010), strategic context (i.e., Brown & Iverson, 2004), sociocultural context (i.e., Iecovich, 2005), or internal context (i.e., Dart, Bradshaw, Murray, & Wolpin, 1996; Golden-Biddle & Rao, 1997) affect the roles, functions, strategies, and relationships between board and staff. In all of these studies, the board’s internal change process stemmed from the changing conditions of the external or internal environment in which the organization is included, which becomes the variable that influences the structure of the governance’s organization. This result supports that obtained by Gabrielsson and Huse (2004) for the private sector (a total of 13 articles that belong to contingency approach), but differs from the results obtained from Hinna et al. (2010), who found that this approach is the most used in the public sector (approximately 57% of articles). Behavioral Studies As defined by Gabrielsson and Huse (2004), those studies in which behavior, decision-making processes, and relationships are investigated within and outside the board belong to this approach. In our analysis, this approach was the most explored, accounting for 44 articles (about 65%). The review shows that the areas of interest are those directed to identify the connection between board effectiveness and organizational performance

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and the variables (in terms of behavior, functions, and processes) that affect board effectiveness (first group) as well as the examination of behavioral characteristics and boards’ relationships (in terms of functions, internal processes, and internal and external boards’ relationships) for the second group. For example, we classified Herman and Renz’s (2004) study in the first group, as the authors examine whether board effectiveness and, therefore, organizational efficiency are the result of organizational changes in boards’ management practices. This study involves a certain number of external stakeholders who were asked to judge, at different periods, whether changes in board effectiveness and organizational performance were related to changes in the use of the “right way” practices. This group also included several studies aimed at identifying variables that affect board effectiveness, such as Cornforth (2001), who examined the influence of inputs, structures, and internal processes on board effectiveness, or Holland and Jackson (1998), who identified six dimensions of boards’ competencies and tested their connection with board performance. The second group includes, among others, Mordaunt and Cornforth’s (2004) article, which analyzed the role and responsibilities of the boards in the internal change process due to failures or during the turnaround of nonprofit organizations, as well as Parker’s (2003) article, which focused on boards’ strategic decision-making processes in a nonprofit organization through a deep study of the internal dynamics. Our results are in contrast with those obtained by Gabrielsson and Huse (2004), who categorized only 10% of articles in this group, and Hinna et al. (2010), who classified about 30% of the articles they analyzed in this group. Evolutionary Studies As previously discussed, this category includes those studies in which both contingency and behavioral characteristics are used to explain boards’ change processes. We found only three articles (about 4%) in the evolutionary stream of research, which is consistent with the results of Gabrielsson and Huse (2004) and Hinna et al. (2010). We considered the studies of Cornforth and Edwards (1999), Reid and Turbide (2012), and Abzug (1996) to be evolutionary. Cornforth and Edwards (1999) found that “the strategic contribution of boards varies widely and depends on a complex interplay of factors: the system of regulation, sectoral traditions and norms of governance, the way boards members are chosen, boards members skill and experience, organizational size and status, and the way boards are organized and run” (p. 346) in terms of both internal and

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external points of view. Abzug (1996) analyzed boards’ change processes in terms of, for example, changes in the composition such as the percentage of people of color or the female members, from 1931 to 1991 in six American cities (Boston, Cleveland, Philadelphia, Minneapolis/St. Paul, Los Angeles, and Atlanta). Finally, Reid and Turbide (2012) examined the evolving relationship between board and staff of four nonprofit organizations and provided recommendations on how a board’s behavior and relationships with leadership change during the different stages of a crisis. The dynamics of change are explained through an analysis of variations in levels of trust and distrust. In order to summarize this stream of research, we can confirm that the main characteristic of these studies is to analyze the internal and external variables that influence the boards’ internal change process, combining the features of behavioral and contingency studies. As reported by Gabrielsson and Huse (2004) and Hinna et al. (2010), we also noted the need to increase research on these topics. According to Hinna et al. (2010), the board should be considered an “open system” subject to change over time due to a number of variables, both internal and external. Combining data from theories and streams of research, we found some interesting results, reported in Table 9. As we have previously highlighted, we found a prevalence of articles using agency theory. However, the distribution of these articles on various Table 9.

Streams of Research and Theory/Perspective Used: Crossing Data.

Theory/Perspective

Stream of Research

Total

Behavioral Evolutionary Contingency Input
Output Agency theory Resource dependency theory Social network perspectives Legalistic perspective Institutional theory Stewardship theory Stakeholder theory Gender and diversity perspective No theory Others Source: Our elaboration.

7 8 1 0 4 3 2 2

2 2 0 0 0 1 2 0

4 2 0 0 3 2 2 0

4 2 0 0 2 0 1 2

17 14 1 0 9 6 7 4

9 25

0 2

0 2

0 3

9 32

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streams of research shows that this theory is mostly used in the behavioral studies. This could seem in contrast with Gabrielsson and Huse’s (2004) review, which found that “many of [input
output] publication lean on agency theory” (p. 17). However, if we consider only input
output studies, we found that agency theory prevails, confirming Gabrielsson and Huse’s (2004) hypothesis. We also found several articles using resource dependence theory, mostly related to behavioral studies. Finally, other theories are almost equally distributed between streams of research.

DISCUSSION The results reported herein indicate clear similarities and differences among private, public, and nonprofit sectors. First, in the review of the private sector, research on boards is more prevalent and developed in North America (United States and Canada). In Europe, as in other territories, such research is still poorly developed (or, at least, diffused). In this sense, one possible explanation for the scarcity of nonprofit board studies in international journals is imputable to the preference for local journals. The most significant result, however, is related to the differences in the stream of research among the nonprofit, for-profit, and public sectors, as shown in Table 10. In the private sector, Gabrielsson and Huse (2004) found that input
output studies are the prevalent stream of research while Hinna et al. (2010) found that contingency studies are the most prevalent. We, Table 10.

Streams of Research on Boards. Comparisons.

Streams of Research

Sector Nonprofit Percentage For-profita Percentage Publicb Percentage

Behavioral Contingency Input
output Evolutionary

44 12 8 3

65.67 17.91 11.94 4.48

13 13 99 2

10.24 10.24 77.95 1.57

16 30 3 3

30.77 57.69 5.77 5.77

TOTAL

67

100

127

100

52

100

a

Comparison with Gabrielsson and Huse (2004). Comparison with Hinna et al. (2010). Source: Our elaboration. b

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conversely, found a prevalence of behavioral studies. This result confirms our initial hypothesis that it is not the affiliation of the author, journal, or the origin of the samples that make the difference, but the intrinsic peculiarity of the sector. Following Gabrielsson and Huse’s (2004) hypothesis, we should have found that
given the prevalence of studies in which the affiliation of the author and origin of the sample are North America
research on nonprofit boards should have been influenced by traditional American research in which boards would be considered an isolated black box between input and output. Nevertheless, we found that the nonprofit sector research mainly focuses on understanding board members’ behavior and the relationships between actors inside and outside the boardroom. Thus, the behavioral component appears to be the key variable of the studies on nonprofit boards. In summation, theories of corporate governance assume that the main objective of these organizations is profit maximization (Speckbacher, 2008); in this context, one of the main characteristics of private sector boards’ research focuses on finding the right balance between size of the board and directors’ shareholding, which limits the attention on the relationships with stakeholders (Gabrielsson & Huse, 2004). On the contrary, in the nonprofit sector, the need to ensure ethical behavior and accountability of boards’ members with respect to a variety of stakeholders (Rhode & Packel, 2009) force scholars and practitioners to study the internal processes, the board’s decision-making process, and the relationships between board and staff in order to understand the variables that allow the board to be effective on the one hand and the organization to be effective on the other (Miller-Millesen, 2013). Among these relationships, those between boards and executives can affect the organizational performance. In these relationships, trust or, better, trust building (Hiland, 2008) can play an important role in order to nurture the values for the organization. Boards’ behavior appears the most important variable related to the organizational performance (Coombes, Morris, Allen, & Webb, 2011). This is clearly an evolution of nonprofit board research. In fact, the first studies on nonprofit boards (see Ostrower & Stone, 2006) were mostly focused on the identification of their composition (i.e., Middleton, 1987), and the results were more coherent with research in the private sector. Our results are also coherent with some recent studies on nonprofit boards in which the authors focused their analysis on the internal organizational characteristics and responsibilities of boards; however, little has been said with respect to external contingencies (Ostrower & Stone, 2010)

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and with regard to the change processes due to historical and contextual factors (Cornforth, 2012). Several studies have investigated the variables establishing the connection between board effectiveness and organizational performance. Among such studies, Brown (2005) examined the way in which board performance can affect organizational performance. In this study, Brown analyzed a combination of objective and subjective measures of organizational performance, linking the six dimensions of board performance suggested by Chait, Holland, and Taylor (1991) to three theoretical perspectives (agency theory, resource dependency theory, group/decision process theory). This analysis demonstrated the assumptions’ validity for all three theoretical perspectives, identifying the strategic contributions of the board as one of the most salient characteristics associated with organizational performance. In addition, Green and Griesinger (1996) compared nonprofit boards’ tasks and responsibilities to explore the relationship between board performance and organizational efficiency. They found a significant correlation between board performance and organizational efficiency and identified policyformation process, strategic planning, program control, financial planning and control, resource development, etc., as activities more related to organizational efficiency. Despite the large number of studies that we found related to these issues, little has been said about motivation. This issue was studied by Inglis and Cleave (2006), who proposed a framework consisting of six components to measure board members’ motivation: improving self-esteem, learning through community, helping the community, developing individual relationships, making unique contributions to the board, and self-healing They further demonstrated such elements to be variables to be considered during the recruitment of members of the board. Ethical boards’ behavior, trust building between boards and executives and, more generally, variables connected to board’s behavior need to be studied in depth, specially in terms of relation between these variables and the organizational performance.

CONCLUSIONS: LIMITATIONS AND DIRECTIONS FOR FURTHER RESEARCH Research on nonprofit boards has increased during the last 20 years, both in relation to academic and practitioners studies. In this first research

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step we choose to concentrate our efforts only on academic research, selecting only articles published in international scientific journals. Moreover, we consider only two databases (science direct and business source complete). Limitations of our study can be addressed in a second research step adding unpublished scholars’ (such as conference papers) and practitioners’ studies, and expanding the sources of scientific contributions. In order to summarize conclusions and direction for further research, we can summarize our suggestions as follows. .

Theoretical Contributions Differences among the sectors are evident. However, such differences do not represent a bad thing, but rather a stimulus to the three sectors in learning from each other. New perspectives that consider in more detail the external environment and how this can affect the board’s change processes can complement research on nonprofit boards. Board research in private and public sectors can be supplemented by behavioral aspects, including relationships among actors, processes, decision-making process, and characteristics and skills of board members, relating these to board effectiveness and board effectiveness with organizational performance in order to identify the variables most incisive for organizational performance in the three sectors. Due to the lack of evolutionary studies (a common factor in all three sectors), there is a need to combine more variables related to the external environment with behavioral aspects, which represents the biggest challenge for research on board governance in particular. Indeed, boards cannot be considered separate from the social, cultural, environmental, legislative, and (not least) temporal contexts. Nonprofit board studies should analyze these characteristics, reflecting the variables that affect them. We suggest, also, a greater contribution to the studies of boards by scholars from European and Asian countries, whose contributions continue to be more limited than those from North American countries.

Managerial Contributions Boards’ behavior, in term of its internal/external relationships, results as the most studied variable, with the goal to investigate which practices

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can affect board performance and, finally, the organizational performance. Among other variables, such as internal processes and board’s competencies (Cornforth, 2001), boards ethical behavior still results a neglected area in which managers and practitioners can play an important role. Referring to these reflections, we suggest a great contribution towards ethical questions, especially on how ethical boards’ behavior is related to a better organizational performance.

ACKNOWLEDGMENTS The paper is the joint work of the authors. However, in the final writing, sections “Introduction,” “Methods,” and “Conclusion: Limitations and Directions for Further Research” has been written by Sonia Moi; sections “Aims of Research,” “Factors Affecting Empirical Research on Boards,” and “Discussion” has been written by Luca Gnan; section “Results” has been written by Fabio Monteduro.

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WHAT DRIVES GOOD PHILANTHROPY? THE RELATIONSHIP BETWEEN GOVERNANCE AND STRATEGY IN FOUNDATIONS Giacomo Boesso, Fabrizio Cerbioni and Kamalesh Kumar ABSTRACT Purpose
This paper examines the role that effective governance plays in driving the strategies of grant-giving foundations as it relates to supporting various types of charitable and philanthropy activities of public interest. Today, foundations are more than ever active as pivotal element of the so called ‘private welfare state’ all around Europe and the United States. While other forms of organizations involved in philanthropy and public welfare face competition (i.e. corporations), budget constrain (i.e. governments) or fundraising imperatives (i.e. NGOs), private foundations do not feel such a pressure and can, therefore, tackle social issues that other organizations may not. Despite this privileged position, the role of governance in such non-profit organizations is far from certain.

Mechanisms, Roles and Consequences of Governance: Emerging Issues Studies in Public and Non-Profit Governance, Volume 2, 159
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Prior literature review shows the lack of empirical analysis related to the role of governance in foundations as they attempt to shape various projects of strong public interest. Design
Given foundations’ unique societal role and obligations and the fiscal advantages enjoyed by them, the objective of this study is to explore the factors that drive their decision-making and resource allocation process and to examine the efficacy of their financial and non-financial resource allocation decisions. Using the data collected from 112 large Italian foundations, this paper studies the relationship between the governance mechanism and philanthropic strategies of private foundations. Findings
The significance of the study is based on the fact that in the non-profit sector, more than in the for-profit one, board members are called to play a strong advisory role at the top of their traditional monitoring role. In other words, active boards are expected to screen relevant public needs and to properly invest foundations’ resources in meritorious projects; while inert boards risks to pursuit private goals, camouflaged as public interest, and to dissipate resources by unconditionally financing unrelated grant requests. Originality
This paper aims to empirically examine if and how different governance attributes associate with different philanthropic strategies. The choice of Italian foundations represents an ideal research environment considering the strong reduction of governmental social spending due to the financial crisis and the simultaneous increase in the social relevance of private foundations to support social causes of significance. Keywords: Non-profit governance; grant-making; board capital; board processes; board performance; philanthropic strategy

INTRODUCTION Because of their private nature and endowed capital, foundations face limited competitive dynamics and only partial fundraising imperatives. This freedom is foundations’ greatest strength, allowing them to address social issues other private and public actors will not. On the other side, this freedom might be associated with inadequate checks on the decisionmaking of foundations’ leaders and inefficient allocation of their financial wealth and philanthropic spending (CEP, 2007, p. 2). What drives their

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decision-making? Are they guided by strategies when making decisions about the use of their financial and non-financial resources? To what extend foundation CEO’s and program directors are supported and supervised by an appropriate governance system? Endowed private foundations do not face resource-generation concerns or competition; by meeting a minimum payout on their wealth (often around 5%) they next invest this profit in the social arena according to their preferences, plans and needs. Good intentions alone, however, are not enough to gain the trust of the communities in which foundations operate. Competence and professionalism of foundations’ leaders need to emerge as the driver of social initiative. The lack of market control matched with the foundations’ qualitative goals call for a more accurate strategic planning, increased transparency in the grant-making process and higher degrees of effectiveness and efficiency indicators (Lichtsteiner & Lutz, 2012, p. 484). An increased use of managerial tools is today required to any non-profit organization in order to cope with increasing social scrutiny, and the starting point for the appropriate application of these tools is often individuated in a sound governance system. Governance, however, is not fully developed in the existing literature on the non-profit sector, possibly because of the complexity of measures related to the organizations’ value creation. It is notably difficult to measure the outcome of grant-making activities which need to be measured in term of disease reduction or well-being creation. To fill this gap the present paper aims to address the various elements of a sound governance system and their relationship with the design of appropriate philanthropic intervention in specific social environments. By investigating the relationship between governance attributes and philanthropic spending procedures, this study tries to empirically test the following research question: is there a visible connection between philanthropic strategy and board’s characteristics in grant-making foundations? And, if so, what type of changes are visible in the board’s characteristic in presence of different philanthropic spending patterns?

THEORETICAL BACKGROUND Grant-giving foundations are intermediaries between the individual donors who found or fund them and the various social entities they financially support. As such, the classical for-profit ‘agency problem’ arises, even if with

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peculiar non-profit differences. Foundations’ leaders are the ‘agents’, while community stakeholders (donors as well as beneficiaries) are comparable to the corporate ‘principals’ (shareholders). Because of this peculiar and composed ‘principal’, foundations’ CEOs and managers should be selected and supervised based on their creation of social value (either welfare creation or disease reduction), in the same way private managers are entitled for the creation of shareholder value. More specifically, in creating social value foundations’ managers are required to make the most effective use of scarce resources than, either, individual donors or the government could make. Furthermore, free from individual preferences or political pressure, foundations’ manager should explore any possible solution to social diseases and compare prototyped experiences of social venture with the right scale, time horizon and managerial expertise (Porter & Kramer, 1999, p. 122). Non-profit agents behaviour is thus fully comparable to corporation managers, but at the top of that, foundations’ manager also face the additional complexity of spending money generally favoured through tax preferences which belongs, in a sense, to the whole community. In doing so, only effective governance systems can mediate between the conflicting goals of the different principals interested in social value creation (donors, beneficiaries and communities) and other agent’s goals which typically add up (career planning, short-termism, consolidation of his/her own network, consolidation of the foundations’ size, scope, power, financial return etc.). Finally, because of foundations’ broad community mission, agents’ actions should be performed in the full interest of all major stakeholders, not only the principals, such as: employees, governments, suppliers, partners, communities etc. Accordingly, the governance system is required to carry on its strategic and advisory functions on agents leveraging on its independence, knowledge, experience and relying on the appropriate governing processes designed to inspire and monitor the agents’ actions. Despite the fact that recent literature has extensively investigated the composition, role, responsibilities, and characteristics of non-profit boards, the non-profit literature reviews currently available (Du Bois et al., 2007; Ostrower & Stone, 2006) show the lack of research on the casual link between governance and organizational performance. Brown (2007) suggested, as pivotal point for approaching the issue, the analysis of the strategic contributions of boards and, simultaneously, practitioners-oriented publications, such as those of the Center for Effective Philanthropy, developed frameworks to analyse governance’s key contribute to strategic planning (CEP, 2004).

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Many of these reports extend the seminal work of Green and Griesinger (1996) who isolated five non-profit board’s activities related to organizational efficiency: strategic planning, policy-formation processes, program control, financial planning and resource development. More recent studies also acknowledged board motivation and board capital as further drivers of good governance. Inglis and Cleave (2006) proposed a framework composed by six ‘intangible’ attributes: self-esteem, learn through community, helping the community, individual relationships, unique contributions to the board, self-healing. Different combinations of these governance activities and attributes, is here argued, are very likely to lead to different strategic approaches and no study so far has tested how governance associates with, first, philanthropic strategic decisions and, second, foundations’ performances. A first temptative classification of foundations’ records in term of social value maximization and trustees’ role (i.e. board members) was proposed by the Center for Effective Philanthropy (2007) in its publication titled Beyond the Rhetoric: foundation strategy. CEP researchers extracted from detailed interviews four categories of decision makers that range from nonstrategic to strategic, namely: Charitable bankers, foundations that describe decision-making solely in terms of processes for reviewing, making or denying grants requests; Perpetual adjusters, which typically note many options for focus, decision-making, activities and processes proposing uncompleted strategic frameworks; Partial strategists, which define a clear decision-making framework not articulating hypothesized causal connections between use of resources and goal achievement and Total strategists, which use externally focused strategic framework connecting foundation resource use and goal achievement. According to these authors, a foundation lacks in strategy when its governing and strategic processes are internally driven and looks only inward. For example, in supporting children’s education, a grant-making process is not strategic if described as ‘based on applications reviewed by blind reviewers and awarded with grants to facilitate collaborations’. While, on the opposite side, it is more strategically driven if described as ‘support for improving teacher training because analysis shows that under-qualified teachers are the biggest reason why children’s educational achievement is not progressing fast enough’. A clear connection between governance and strategic spending is next proposed as starting point of the right strategic attitude, when CEP states (2007, p. 5) that foundation are hungry for better data to assess foundation strategy and need to develop the key benchmarks that will help boards to

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measure progresses and refine strategy. And, again, when CEP proposes (2007, p. 6) to measures foundations progresses in three key areas: managing operations, optimizing governance, and setting the agenda through strategy. Governance role is thus pivotal in linking the foundations’ spending tracks (all foundations deliver grants) with an optimal strategic track (only some foundations drive grant-making strategically). Governance contribution to the creation of a sound strategy and high social value, however, is a pioneering field of research. Some authors have suggested that the innovativeness and effectiveness of foundations could depend on their governance model (Bradshaw, Hay Day, & Armstrong, 2007) and on the boards’ characteristics in terms of structure, composition, and performance (Brown & Iverson, 2004; Herman & Renz, 2000; Miller-Millesen, 2003). These initial suggestions will next help in formulating testable hypothesis.

HYPOTHESIS Board Competences and Composition The role played by the board as a whole is a mosaic of the individual roles of the directors in terms of both the internal and external environments (Bradshaw, 2009; Callen, Klein, & Tinkelman, 2003). There is great variability in the capabilities that each board member brings to his or her organization that arises from professional experience, problem-solving skills, and stakeholder exposure (Inglis & Cleave, 2006). Previous research underlines the central role the board competencies play in designing and implementing the social strategy of non-profit organizations. In fact, as stated by De Andre´s-Alonso, Azofra-Palenzuela, and Romero-Merino (2010), in the non-profit sector the boards of trustees stand out for their level of commitment in strategic planning and decision processes. According to these authors board members do not limit themselves to monitoring the managerial team but they play a more active role in the decision-making process, defining the organizational mission and forming the agreement on resource allocation. For this reason, the function and composition of the board has to be studied in a more global perspective embracing not only its monitoring activity, but also in terms of introducing and using the knowledge which is critical to constructive decision-making. Following Porter and Kramer (1999) and CEP (2004) we propose that superior governance

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attributes (such as diversified competences, frequent meetings, appropriate incentives, deep non-profit knowledge etc.) associate to more complex strategies: H1: Superior governance attributes positively match with more evolved philanthropic strategies.

Board Performances Previous non-profit literature (Cornforth, 2003; Green & Griesinger, 1996) highlights the relevance of the board strategic contribution in determining both the board and the organization effectiveness. Holland and Jackson (1998) underscore the importance for the strategic success of board actions like: recruiting the right people, putting meaningful structures in place, setting the stage for effective board meetings, and steering meetings to improve board process. Green and Griesinger (1996) found evidence that, after defining the firm’s mission and policies, the main board responsibilities for corporate success are the board members’ evaluation of the CEO and their participation in short- and long-term strategic planning, community interaction, and board development. The underlying assumption of such research is that boards involved in more challenging strategies are likely to elaborate and rely on more complex activities and processes to facilitate good performances. Therefore, we hypothesize the following: H2: Organizational and financial performances of foundations are better if and when superior governance attributes matches with more evolved philanthropic strategies.

METHODOLOGY AND RESULTS We collected data on philanthropic spending preferences and governance practices by submitting a questionnaire to the 169 foundations (66% return rate) associated into the two principal Italian national networks: ACRI (which associates the 88 foundation of banking origins, the largest national philanthropic players) and ASSIFERO (which associates 81 grant-giving institutions of corporate, family or community origins). Preliminary versions of the questionnaire were presented to a sample of these associations

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for preview and suggested changes and were tested on a pilot sample of four foundations in order to standardize terms and information. Only the foundation’s chair and/or the general director were invited to fill out the 38-question survey that was posted on a dedicated website. The final analysis consisted of data collected from 52 foundation of banking origin (FBO), 41 corporate or family foundations (CFF) and 19 Community Foundations (CF) on the degree of development of several strategic and governance attributes that lead to different philanthropic approaches (see Appendix for additional details on foundation types). As mentioned in the above paragraphs, the research question investigated in this paper aims to empirically verify the relationship between governance attributes and philanthropic spending patterns as first basic element of the overall relationship between governance effectiveness and strategic action. As such, Italy represents a good research environment for the presence of several large players
the 88 FOBs accounts for over 43 billion of assets and 2 billion of grants each year; while the 81 CFF & CF represents the best and the brightest out of a pool of over 5,000 foundations
more and more required to support the declining welfare state. The state intervention in many social areas, in fact, is being strongly reduced because of the EU sovereign debts crisis and is emerging the creation of a ‘private welfare system’ in which foundations play a crucial role in funding meritorious social projects able to reduce several types of social diseases: rising unemployment, aging population, decreasing educational level, deteriorating art sites, over exploited natural environments, and so on. In all these vital social areas, the state is progressively ‘surrendering’, because of budget cuts, and only strategic oriented private foundations can invest their tax-free funds in the genuine interests of all citizens. The questions formulated were comparable with a similar survey ran in 2004 by the Center for Effective Philanthropy titled Foundation governance: the CEO viewpoint and with other likert scales used by Payne, Benson, and Finegold (2009) to measure the most relevant corporate board attributes for financial success of listed companies. That CEP survey targeted the largest 250 foundations in the United States with a 52% return rate (129 completed surveys) and provided preliminary results, based only on CEO perspectives, about the main predictors of board effectiveness. According to this study, it is relevant to measure some drivers of good governance such as: the board capacity to support strategic oriented spending; the board involvement in assessing the foundation’s overall performance; the board ability to bring thought provoking and important concerns to the attention of the CEO; a low proportion of

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‘insiders’ and ‘donors’ seating in the board; the public relation activism of board members. Following CEP’s methodology, rather than asking CEOs whether their foundations were strategic, we first asked question designed to understand how they made funding decisions. Accordingly, we measured foundations spending track by asking to foundations’ CEOs to self-asses their priority (1 low, to 5 high) in funding three possible grant-making initiatives, different in their strategic formulation
definable as the degree of hypothesized causal connections between use of resources and goal achievement
but formulated in order to appear mutually attractive for a CEOs interested in creating social value on a specific community (Q: Our foundation social funding priorities are): • unconditional grant-giving to external meritorious beneficiaries, if and when the beneficiary’s activities are very likely to increase local welfare; • donations to complex and participated projects in which the foundation invests together with others partners, if and when the project’s goals are very likely to reduce some causes of social disease; • seed capital to social ventures studied and proposed by the foundation itself, if and when the venture’s plan is very likely to maximize the social outcome of each euro spent. The above questions about spending tracks were not mutually exclusive, as such CEOs were allowed to indicate with the highest priority more than one answer. The reason being that foundations with large staff and resources might prefer to invest in all possible social directions. This methodological solution was recommended by foundations during the questionnaire’s testing. Secondly, we measured several ‘tangible’ governance attributes in term of: size; scope; composition; meetings’ activity, schedule and agenda; document analysed and produced; processes, procedures and tools applied for the decision-making. All these elements are often mention by the agency theory literature as elements able to reduce the information asymmetry between principal (shareholders) and agent (managers) and can be certainly adopted by a non-profit foundation where principals are donors as well as beneficiaries (all interested in the foundation as institutions able to leverage on each single dollar of donation) and agents are the foundation leaders (in charge of spending each dollar better than any individual could have independently done). Thirdly, we merged in the final questionnaire additional questions inspired by a relevant empirical study on board’s effectiveness performed

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on 210 companies out of the Fortune 1000 list. In this article, Payne et al. (2009) identified five attributes of high-performing board teams
knowledge, information, power, incentives and opportunity/time
and argues that these attributes can promote board effectiveness, which in turn influences corporate financial performances. Consequently, an additional set of likert scales where proposed to CEOs to measure these ‘intangible’ attributes in their boards. All these additional attributes fit with the resource based theory which assigns a strong relevance to the so called ‘board capital’ inside any organization and argues for the creation of ‘knowledge work groups’ able to bring in the organization relevant and diversified talents and to merge them in the appropriate group dynamic for extracting the best possible contribute to the organizations’ goals achievement. Fourthly, we included some self-assessed board’s performance measures (grant variety, board members’ profile variety, managerial richness, managerial approach to decision-making etc.) as measured by the CEOs’ satisfaction about governance’s action. Mainly because these measures are emerging in the non-profit literature as a good proxy for the evaluation of boards’ performance (Fredette & Bradshaw, 2012; Lichtsteiner & Lutz, 2012). Finally, the dataset was enriched with financial performance (total assets, total grants, board expenses, grants variety etc.) as provided by the two national foundation networks (ACRI and ASSIFERO) who supported the research and administered the on-line survey among their associates; as well as with Table 1 reports the full list of the variables. Building on these methodological premises, the empirical tests performed after having collected all observations consisted in a cluster analysis performed according to the ‘two-step’ clustering technique, which easily accommodates a mixture of continuous and categorical variables. The spending tracks and governance attributes were used as basis for grouping foundations that varied in their strategic approach to philanthropy. In other words, the strategic approach is measured by selected and measurable items that portrayed the role of board members in shaping projects of strong public interest in terms of six main areas: (1) foundation’s spending preference (unconditional grant-giving, complex projects, social ventures); (2) board’s key activities (ex ante screening, in progress funding, ex post evaluation); (3) board capital (appointment procedure); (4) board membership incentives (influence and or reputation); (5) new board members’ grant-making knowledge (pre-existing and start-up training) and (6) governance structure (governance bodies information). Four statistically different clusters emerged with distinct spending preferences, key activities and governance attributes (110 foundations out of 112 were correctly clustered).

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Table 1. Variables’ List. Variable

Definition

Spending preferences Unconditional grant-giving: funding of meritorious third entities CMPL_Project Complex projects: funding of complex networks SOC_Venture Social Ventures: seed capital for foundations’ initiatives Key activities Ex_Ante Planning and screening In_Progress Funding and running Ex_post Monitoring and control Board capital Profile_def Definition of researched profile before CV analysis Visibility Relevance of public visibility selecting a new board member Political Relevance of political connection selecting a new board member Business Relevance of business success selecting a new board member Competence Relevance of grant-making competence selecting a new board member Board membership incentives Influence Level of influence of new board members on spending tracks Reputation Increase of individual reputation after nomination New board members’ grant-making knowledge Existing_Know Level of knowledge about foundation of new board members Training Level of internal training for new board members Governance structure Board_# Number of board members Shareholder Presence of shareholder annual meeting Exec_com Presence of executive committees Control_com Presence of audit committee Other_com_# Presence of other committees Governance performance measures Board_com Presence of diversified competencies in the board Board_mgm Large use of managerial tools (budget, scorecards, HR etc.) Planning_rel Relevance of long run planning in boards’ agenda Screening_rel Relevance of projects’ screening Develop_rel Relevance of projects’ development Monitor_rel Relevance of projects’ monitoring BP_rel Relevance of business planning Bench_rel Relevance of benchmarking with other foundations Foundations’ financial performance Assets Foundations’ total assets at last 31st December Grants Foundation’s total grants at last 31st December B_Expenses Foundation’s board expenses at last 31st December Grant_var Number of social areas in which the foundation invested GR_ov_Ass Total grant over total assets Bex_ov_Ass Board expenses over total assets Bex_ov_Grant Board expenses over total grants UNC_Giving

Measure Likert 1
5 Likert 1
5 Likert 1
5 0
100% 0
100% 0
100% Likert 1
5 Likert 1
5 Likert 1
5 Likert 1
5 Likert 1
5

Likert 1
5 Likert 1
5 Likert 1
5 Likert 1
5 Actual # 1 or 0 1 or 0 1 or 0 Actual # Likert 1
7 Likert 1
5 Likert 1
5 Likert 1
5 Likert 1
5 Likert 1
5 Likert 1
5 Likert 1
5 Actual h Actual h Actual h Actual # % % %

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Cluster 1 is the largest group with 48 foundations. These foundations focus mainly on unconditional grant-giving (83% priority), even if they do not refuse to get involved with complex project (67%), while they are not open to experiment social ventures (0%). Accordingly to their priorities, the main activities are related to the ex ante screening of beneficiaries (80%) matched with some ex post control (20%). Ex post control, however, is not statistically different across clusters. In selecting their board capital, cluster 1 does not pre-define needed profiles and foundations prefer visible (99%) and political profiles (75%). In running the board activities, these foundations rely on trustees’ pre-existing grant-making knowledge (99%) and do not offer any specific training after the appointment in the board (0%). Their boards are fairly large (>8 members) and always supported by an executive committee, a control committee as well as, on average, two other additional committees (either nomination, scientific, ethical etc.). Cluster 2 presents a mixed situation in which all spending tracks seem to be mutually preferred (around 60% priority) and activities are equally distributed (around 30
40% each). Some foundations profiled the researched board member (26%) but, on average, they still prefer politician or other highly visible people. This group (23 foundations) records the highest score in term of training activities for new board members (17%). Foundations belonging to cluster 3 (19 organizations) have a visible preference towards complex projects (75%) but they do not neglect the two other spending tracks (respectively 52% for unconditional grant-giving and 71% for social ventures). Accordingly, they are more inclined towards the pre-profiling of new board’s members and prefer people with outstanding business records (59%, the highest score across all clusters). In supporting these complex projects they show, on average, the highest number of supporting committees inside the board (2.32). Finally, cluster 4, 19 foundations, records the strongest preference for social ventures initiatives (74%), the largest board commitment for the in progress activities (running the ventures), the highest interest in pre-profiling new board members (58%) and in appointing people with proved grantmaking expertise (84%). These foundations show the highest incentive in term of power of influence and reputation for their members (respectively 40% and 59%) and they are often required to report about their progresses to the annual meeting of the main foundation’s founders (shareholders). While it appears clear that the four clusters are different in their overall philanthropic approach and governance attributes (H1), further analysis on their actual performances is needed in order to better investigate if we are really observing different strategic approaches. In particular, only the

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analysis of their board performance and financial performance can help in understanding the presence of a hypothesized causal connection between use of resources and goal achievement. In order to asses such differences, the cluster classification was next used to perform and ANOVA analysis on self-assessed board performance’s measures (level of heterogenic composition of boards; level of managerial tool adoption; planning relevance; project managing relevance; project screening relevance; project monitoring relevance; business planning relevance; benchmarking relevance) and actual financial performance (assets; grants; board expenses). The foundations belonging to different clusters showed statistically significant variances at all performance levels. Cluster 1 foundations assigned the largest relevance to long term planning (99%), followed by screening (75%) and monitoring relevance (75%). Interesting enough, all other managerial performance measures are strongly neglected (three of them show a 0% relevance across all foundations belonging to this cluster: project’s development, business planning and benchmarking). Thus, matching data in Tables 2 and 3, one can observe a strong connection between unconditional grants preference and classical ex ante managerial tools. This cluster partially fits with the charitable bankers category discussed in the literature review: foundations that focus on processes for reviewing, making, or denying individual grant requests, rather than implementing a feedback driven strategy. Cluster 2 foundations assigned the largest relevance to developing processes (63%) while all other managerial measures are adopted but rarely with strong relevance (in all cases below 50%). The picture portrayed by data shows foundations active in all philanthropic arenas with a strong managerial focus on daily operations. As such, they fit well with the perpetual adjusters category: foundations which use strategy very infrequently, mentioning processes they use for review and revise decision-making, with little or no interest in increasing their options for strategic planning. Cluster 3 foundations matched their preference for complex projects (as reported in Table 2) with the largest use (52%) of the most common managerial tools (budget, scorecard, HR planning etc.); a strong relevance of projects’ development (57%); and the largest relevance (33%), across clusters, for the benchmarking of their performances and actions with similar foundations. As such, this group fits well with the partial strategists category, where CEOs perceive the connections between resources and goals and use at least some managerial frameworks to drive their decisions. However, the strong focus on daily operations and the choice of the simplest managerial framework (benchmarking) very likely preclude them to

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Table 2. Clusters. Variables # of foundations

Cluster 1

Cluster 2

Cluster 3

Cluster 4

p-value

48

23

19

20

0.000***

0.52 0.75 0.71

0.54 0.71 0.74

0.000*** 0.347 0.000***

0.39 0.34 0.24

0.39 0.43 0.18

0.000*** 0.000*** 0.092

0.21 0.49 0.57 0.59 0.66

0.58 0.50 0.51 0.48 0.84

0.000*** 0.000*** 0.000*** 0.000*** 0.000***

0.32 0.47

0.40 0.59

0.000*** 0.01**

0.40 0.14

0.56 0.15

0.000*** 0.01**

8.00 0.32 0.05 0.95 2.32

7.45 0.82 0.00 0.95 1.45

0.059 0.000*** 0.000*** 0.01** 0.000***

Spending preferences UNC_Giving 0.83 0.68 CMPL_Project 0.67 0.62 SOC_Venture 0.00 0.65 Foundations’ key activities Ex_Ante 0.80 0.36 In_Progress 0.00 0.40 Ex_post 0.20 0.23 Board capital Profile_def 0.00 0.26 Visibility 0.99 0.65 Political 0.75 0.64 Business 0.00 0.49 Competence 0.50 0.52 Board membership incentives Influence 0.00 0.25 Reputation 0.39 0.57 New board members’ grant-making knowledge Existing_Know 0.99 0.23 Training 0.00 0.17 Governance structure Board_# 8.81 6.00 Shareholder 0.00 0.00 Exec_com 0.99 0.09 Control_com 0.99 0.78 Other_com_# 2.00 0.26

*p