The Impact of Board Monitoring and Involvement on Top Management Team Affective Conflict

Boards of directors are expected to be vigilant protectors of shareholder's interests, particularly in light of recent scandals that have plagued Wall Street. To accomplish this goal, boards can assume a number of potential roles; these roles are generally divided into three basic categories--control, strategy, and service (Zahra and Pearce, 1989). Boards of directors can monitor managers to control their behavior; they can influence strategy by being involved in strategic decision making; and they can service the board by providing resources, advice, and counsel. Boards of directors have been examined thoroughly in both the scholarly literature and the popular press (Business Week, 2002; Scherrer, 2003), and it is generally accepted that an active board will produce better organizational performance. However, governance research has yet to differentiate between these multiple roles and the impact that each may have. Indeed, empirical research on corporate governance has told us more about what we do not know than what we do know about the impact of boards of directors (Daily et al., 2003). Drawing largely from agency theory (Fama, 1980; Jensen and Meckling, 1976), researchers have endeavored to show that the more vigilant boards are about fulfilling their responsibilities, the better will be the firm's performance. However, the empirical findings have been inconclusive. This lack of an empirical consensus suggests that the impact of board actions may be more complex than generally thought. Whether there are differing impacts of the multiple roles of boards have not yet been established. In general, researchers have not explored, empirically, the possible downside of board action. Notable as an exception are Zajac and Westphal (1994) who explored the downside of strong boards and found evidence to suggest that increases in board monitoring may ultimately diminish a CEO's cognitive attention to and motivation for maximizing firm performance. They also found that more complex firm strategies are associated with higher costs of monitoring. In view of these findings, they suggested that future researchers explore the trade-offs inherent in corporate governance. This study answers that call by exploring some unintended negative consequences of board involvement (i.e., strategy) and monitoring (i.e., control). Our attention to the potential downside of board monitoring and involvement is not intended to minimize the importance of the upside. Monitoring is a fiduciary responsibility of the board, and studies have shown that effective board monitoring can improve firm performance (Zahra and Pearce, 1989). Moreover, board involvement in strategic decision making can have positive performance consequences as well (Judge and Zeithaml, 1992; Pearce and Zahra, 1991). However, because researchers have focused almost exclusively on the benefits of increased monitoring and involvement, we do not yet know what costs may be associated with those bene fits. In this study, we explore the possible externalities of board monitoring and involvement by examining the different effects of the top management team's (TMT's) perception of board monitoring and involvement on affective conflict within the top management team. Specifically, we ask the question: How do board monitoring and involvement, as perceived by the TMT, impact the levels of affective conflict within a top management team? In developing our model, we draw upon affect control theory (Heise, 1979). Affect control theory suggests that the more closely board members monitor top management team decisions, the less affective conflict those teams will experience because monitoring is in keeping with the team members' perception of the board's role and identity. In other words, the top management team (TMT) expects the board to oversee its work and gauge its performance. We also argue that the power of the top management team is a moderating factor, such that more powerful teams will have less affective conflict stemming from board monitoring because they have greater discretion toward meeting their goals. …