Board or CEO Dominance?

Abstract

CEO-board power relation is a controversial topic in theory and practice. Our research question is, how does the dominance of each party affect the board’s involvement in the strategy-making process? This study aims to provide a contingency understanding of the subject by using a multi-theoretic approach. In this way, it goes beyond examining the mere structural factors influencing formal power. This study opens the black box of CEO-board interactions from a behavioral standpoint. For a multiple-case-study in six banks, the authors conducted 49 semi-structured interviews. Within and cross-case analyses based on systematic coding led to 15 propositions and conceptual model development. First, researchers observed that at least in the Iranian context, contrary to agency theory, the detrimental effects of board dominance are more significant than the CEO dominance. However, instead of giving linear prescriptions, this study concludes by considering the complex nature of power relations and the necessity of multilevel analysis to understand each power structure’s preference in different situations. At three levels of analysis, including the group, individual, and organizational levels, concepts such as “group strategic thinking,” “cohesiveness,” “sense of belonging,” “tendency to political behaviors,” “managerial stability,” “strategic execution,” and ultimately “strategic change” as the desired output of strategic involvement were explored. Authors have explained the relationships between these concepts using multiple theories. Moreover, a more in-depth understanding of power dynamics at the upper echelons is obtained by identifying the moderating roles of “trust” and “personality.”

Keywords

• corporate governance
• participation in strategy-making process
• board-ceo relative power
• multi-theoretic approach
• behavioral perspective