Absorptive Capacity in a Board Context A Quantitative Analysis

A recent strand of literature has investigated the ‘black box’ of actual board processes, behaviors an d task performance in order to advance knowledge on the behavioral and human side of corporate governance and develop recommendations to improve board effectiveness. Our analysis contributes to this literature by theoretically investigating the link between board task performance and absorptive capacity. Boards of directors and their role in directing and governing organizations have long been the subject of research (Daily, Dalton, & Cannella Jr, 2003), and new knowledge on how boards behave, function and perform has attracted much interest by practitioners especially in the light of corporate scandals. Yet, despite t he impressive advances made by scholars, our knowledge of boards and board performance is not complete. One particul ar gap relates to our understanding of how boards behave d ynamically and the extent to which they are capable of learning and adapting over time. Hence, insights g enerated by the literature on dynamic capabilities and learning and knowledge transfer may advance our understanding of board processes and board effectiveness. In our project the mediating effect of absorptive c apacity on board task performance is discussed, tes ted and analyzed. The concept ‘absorptive capacity’ origina lly goes back to learning theory. Since the concep t was introduced by Cohen and Levinthal in 1989, the theo ry has been further developed (Zahra & George, 2001, 2002, Jansen et al, 2005, Lane et al, 2006, Todorov a and Durisin, 2007). Absorptive capacity is one of several dynamic capabilities and describes the effectivenes s with which organizations identify, assimilate and use new knowledge. Several empirical studies have been cond ucted related to firms, but absorptive capacity has just rarely been associated to board task performance. B uilding on process models of board performance, we apply absorptive capacity to boards and argue that absorp tive capacity mediates the relationship between boa rd knowledge levels and board task performance. Related to the theory above and a model derived by Lane (defining absorptive capacity by exploratory, transformative and exploitative learning) (Lane et al, 2006), we derive the hypothesizes. Since absorp tive capacity has not earlier been measured in a board c ontext,. measurements for absorptive capacity are d iscussed and developed. Since earlier presentations have met the argument that the measurements of absorptive c apacity in a board context are complicated and hard, not sa ying impossible to develop, we choose to include th e whole description of this part of the study. Based on a s ample from the Norwegian research program "The Value Creating Board" (2003-2006), the hypothesizes are t ested. By using statistical theories we find signif icant support for our hypotheses, which indicates a media ting effect of absorptive capacity on board task pe rformance with the antecedent "presence of knowledge and skil ls". These results should be of great interest in an aca demic as well as in a practical context, since the challenges of boards of today often is related to innovations, dy namic behavior and utilizing of new knowledge. In o ne and the same country we find some companies which succeed in their further development, while others do not f ind their way into the new world having exactly the sam e availability of information and knowledge The abs orptive capacity might be one of several crucial factors ex plaining the difference between this success and cr isis.