Is the primary role of the board the protection of shareholder interests, as many statutes, corporate governance codes and commentators assert; or is it the pursuit of performance goals and creation of value? According to the law, responsibility for the performance of companies lies with the board of directors (henceforth, the board). This implies that an important role of the board is to influence business outcomes and, in so doing, oversee the creation of value: the achievement of a satisfactory level of firm performance including returns to shareholders.
Boards of directors have been the subject of considerable research attention in recent decades, especially since the succession of the high-profile company failures of the early 2000s. A considerable board of knowledge has now been developed. However, the most difficult question of whether and if so how boards could influence firm performance remains. If an answer can be achieved, it is likely to have significant implications for the understanding appropriate board practices (i.e., corporate governance) and, ultimately, the creation of value for shareholders.
The purpose of this article is to explore the board’s role in value creation through the lens of strategic management. An alternative approach for effective board contributions is presented, including a mechanism-based model of the governance–performance relationship. The model, developed by the author, provides a framework to demonstrate how functional boards can ‘perform’ corporate governance and in so doing pursue the value-creation mandate. The mechanism-based conceptualisation presented in this article also demonstrates that the active involvement of functional boards in specific strategic management activities is important if the board wishes to exert influence from and beyond the boardroom.