Boards, Governance and Value Creation: The Human Side of Corporate Governance

Boards, Governance, and Value Creation: The Human Side of Corporate Governance Morten Huse Cambridge University Press, (2007) 392 pages, Softcover, $45.00 Reviewed by Jonas Gabrielsson, CIRCLE, Lund University; and Taina Tukiainen, Helsinki University of Applied Science Industrial Management Prof. Morten Huse presents and reintroduces boards and governance from a strategic and entrepreneurial management perspective. The subtitle "The human side of governance" refers to the fact that the main focus lies on interactions and processes between board members and other actors inside and outside the boardroom - something which is often characterized as the 'black box' of board behavior. The book consists of eleven chapters: 1. Understanding boards and governance; 2. Internal and external actors: defining corporate governance, 3. Board task expectations: contributions from theory; 4. The board members; 5. Context and resources; 6. Interactions: trust, power and strategizing; 7. Structures and codes, norms and leadership; 8. Decision-making: the boardroom culture; 9. Actual board task performance; 10. The value creating board; and 11. An ABC of boards. Chapter 1 makes a nice introduction to the topic and presents how the whole book is structured around a holistic and systematic framework that aims to understand the role of boards in corporate governance and how boards should be structured in order to maximize value creation. The framework is itself embedded in three intellectual traditions. Corporate governance is in chapter 2 defined as being about interactions between internal actors, external actors and board members in directing a company for value creation. Definitions of corporate governance are moreover seen as a struggle between ideologies as they are embedded in positions of "who and what really counts". In the chapter there is a presentation of how the corporate governance debate has developed and shifted from a focus from management definitions to definitions focusing on various groups of shareholders. The most important message in the chapter is that conceptualizing corporate governance is not about identifying the principal or main actors in a company. Rather, it is important to acknowledge that there are various groups of actors external or internal to the company, and the relations among them may empower the board members for special roles or tasks. These board task expectations (myths) and actual board task performance (realities) are addressed in chapter 3 and 9 respectively. In chapter 3 there is an impressive review of theories about boards and governance. Based on this review a typology is developed of six main board tasks with various focuses depending on if they have a firm-external control or firm-internal service perspective. The various board tasks are also sorted under different categories depending on if they emphasize formal tasks (aunt theories), external perspectives and incentives (barbarian theories), institutional perspectives and norms (clan theories) or strategies and resources (value creation theories). Chapter 4 is introduced by the statement that only an odd number can lead a corporation and that three is too many. From this start the chapter takes a fresh look on the topic of board members. Most studies of boards and governance have examined what is usually referred to as 'the usual suspects', which is the number of directors, the ratio of outside directors, CEO duality, and the percentage of shares owned by the board. Instead, the chapter focuses on the competence, compensation and motivations of board members. First the market for board members is discussed alone with the issue of how board members are recruited. Thereafter follows an exploration of board members from a demand side perspective (firms having need for board members) followed by an exploration of board members from a supply side perspective (individuals who are able to serve as board members). …