Beyond board capital: probing inside the black box of Australian board recruitment and dynamics
Creators: name: Smith, Sherene
Publisher: name: RMIT University
Year: 2024
Subjects: classificationCode: 350701
subject: Corporate governance
classificationCode: 350709
subject: Organisation and management theory
classificationCode: 350710
subject: Organisational behaviour

description: This study interrogates the conceptualisation of board capital (Hillman &amp; Dalziel 2003) analysing its usefulness in understanding who, how and why board members are recruited onto boards and the nature of board dynamics. This investigation progresses current discussions and perspectives on the concept of board capital through a qualitative study that examines how board capital is created, its contextual influences and the way board dynamics shapes board capital. <br>This research addresses the overarching question: What is the nature of board capital in the Australian context and how does board recruitment and dynamics influence the formation and utilisation of board capital? In so doing this thesis provides answers for the following questions: What are the contextual factors that shape the creation of board capital? What are the key considerations in the recruitment of board members? What are the human and social capital characteristics of board members? What are the factors that influence board dynamics and how do they shape board capital?<br>Board capital is theorised as an amalgamation of board members’ human and social capital which has been operationalised in several ways. Currently there is no consensus on what constitutes human and social capital in the board context. Various proxy measures of board capital have been used to examine the relationship between boards and organisations with equivocal results. A qualitative study provides a basis for evaluating and rethinking assumptions about board capital and considerations of how governance actors and organisations function in particular contexts.<br>This qualitative research analyses data from 20 semi-structured interviews with board members on four types of boards (profit, govt. not-for-profit and for profit) and documentary analysis of regulation and members of Australian boards. The study finds that social identity influences the composition of boards and is used as an important criterion in candidate matching. Closed social networks are used as the primary means of identifying board members, potentially excluding qualified outsiders. The findings suggest an emphasis on reputation and networks as factors used to influence perception on the usefulness of a board member to link a board and/or an organisation to its needed resources. <br>The data shows that board dynamics is influenced by chair authority and conditioned by the power distribution among board members. Interviewees revealed that power regulates board member interactions which appear to influence board cohesion, an antecedent of board productivity. Board members use various stratagems to exert control and that power plays a role in how board practices, processes and systems of rules are shaped, interpreted and controlled by board members. There is a tension created by influential stakeholders seeking to homogenise boards, an added complexity in the decision-making process of boards.<br>The data suggests that boards are challenged to manage competing interests creating a quandary between self-interest and organisational stakeholder interests. The data highlights that challenges experienced by board members create role conflict, role confusion and role strain. There are a number of contextual factors that have bearing on how board members are recruited, how board activities are defined and how board members come to understand and execute their role.<br>Working from a sociological perspective this study broadens the scope of the concept of board capital emphasising the importance of socio-political context. The findings challenge a number of arguments (Haynes &amp; Hillman 2010) supporting the use of human and social capital to explain the inner workings of boards, by exposing complex interactions, interdependencies and interrelationships associated with boards. Findings highlight that the construct of board capital, by focusing on the individual characteristics of board members, ignores intrinsic factors such as group dynamics that influence the productivity of the collective. <br>The qualitative data draws attention to the paucity of proxy measures linked to board capital which do not explain why board members are recruited and selected, challenging the importance of human capital. This raises awareness about the limitations of board capital in explaining the recruitment process and how boards operate. Findings suggest that board recruitment and dynamics are influenced by powerful actors shaping board composition and the quality of interactions within boards and their broader environment. <br>This study provides vital insights to policy-makers about the board recruitment process. Board recruitment appears to be similar to other recruitment processes seeking the most qualified candidate. However, findings suggest that the board recruitment process is multifaceted, creating contradictions. Interviewees suggest that while there appears to be some emphasis on skill and gender diversity, boards recruit from within a closed circle restricting the pool of candidates. If this recruitment practice is widespread, it has the potential to create a diversity paradox where increased skill and gender diversity do not lead to a diverse group of people on boards. Policies promoting a transparent board recruitment process and a broader view of diversity are required to meaningfully improve board diversity.<br>