Fulfilling the board’s value-creation mandate

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.

Peter R. Crow, PhD

Board Advisor & Company Director, CMInstD

Dr. Peter R. Crow advises boards and directors internationally on corporate purpose, strategy, corporate governance and effective board practice. His deep knowledge, insight and practical boardroom experience has proven to be invaluable to the fortunes of emergent and established companies alike, and social enterprises. His expertise extends across many sectors including professional services, high technology, agribusiness, logistics and distribution, healthcare and local government. He also undertakes governance research; speaks at conferences and other events; presents professional development courses; and, is a published author and an accredited company director. Peter is a multiple graduate of Massey University, New Zealand, gaining Bachelor of Technology (1st class Honours), Postgraduate Certificate (Business) and Doctor of Philosophy (Corporate Governance) qualifications. His doctoral research explored the relationship between governance, strategy and firm performance. He is a Chartered Member of the Institute of Directors (CMInstD), and a member of several international institutes and academies.

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