‘Mind the board!’: Board efficacy,managerial role dilemmas and performance in municipally owned corporations

Abstract

Globally, the corporatisation of local public services has gained substantive momentum over the past decades. However, there is a research gap concerning the functioning of governance bodies, particularly boards, in municipally owned corporations as hybrid organisations. In this study, analysing German municipally owned corporations, we investigate the relationship between supervisory board efficacy, as attributed by chief executive officers, and perceived organisational performance. We do not find a direct relationship; instead, we find evidence for a ‘catalyser’ relationship: board efficacy alleviates managerial role dilemmas, thus removing obstacles to organisational performance. The results imply that particular attention needs to be paid to the enhancement of competencies of board members and their collaboration. Limitations are outlined.

Points for practitioners

• ‘Good governance’ of hybrid organisations requires effective boards, which – albeit indirectly – ultimately result in better corporate performance.

• Board efficacy alleviates managerial role dilemmas, thus removing obstacles to performance.

• The results imply that particular attention needs to be paid to the enhancement of competencies of board members and their collaboration.

Keywords

Municipally owned corporations hybrid organisations (public) corporate governance board efficacy performance structural equation modelling Germany

Introduction

Corporate governance (CG) refers to ‘the structures, systems and processes concerned with ensuring the overall direction, control and accountability of an organisation’ (Cornforth and Chambers, 2010: 99). The CG literature argues that one of the prerequisites of ‘good governance’ of organisations is to have effective boards (Mannion et al., 2017), which ultimately results in better various dimensions of financial performance (Williamson, 1984). This renders boards the backbone of many CG arrangements (Leixnering et al., 2022). Within the scope of this study, board efficacy is understood in the sense that boards are, on the one hand, effectively managing internal and external relationships by leveraging influence and resources, and, on the other hand, processing and managing information effectively (Mannion et al., 2017).

Given the importance of state-owned enterprises (SOEs) worldwide (Bruton et al., 2015; Grossi et al., 2015), there is an urgent need to study their board practices (Papenfuß et al., 2019; Vakkuri et al., 2021). Municipally owned corporations (MOCs) as local-level SOEs guarantee a wide range of services (Bernier et al., 2020) and have been defined as decentralised public service organisations operating predominantly in market-oriented areas and being relatively independent at ‘arm's length’ from the municipal core administration (Voorn et al., 2020). They are hybrid organisations that have an independent corporate status (predominantly under private law) with a majority public ownership. MOCs are ubiquitous; in Germany almost 50% of municipal employees are employed outside the core administration (Papenfuß and Schmidt, 2021). As hybrids operating between markets and administrations, they are characterised by a diverse range of demands (Boll and Sidki, 2021; Sidki et al., 2023). This is particularly relevant with regard to legitimacy demands and transparency requirements (Vakkuri et al., 2021). Often, subject to market influences, the generation of profits is less relevant than for private-sector organisations.

A literature overview of CG in public sector organisations found that only a small fraction of reviewed studies focused on ‘board behaviour and performance’ (Daiser et al., 2017). Boards that are predominantly composed of local politicians have been considered to impede entrepreneurial orientation (Tremml et al., 2022). In addition, elected officials might not make technically appropriate decisions as they are subject to political pressure from parts of the electorate (Bourdeaux, 2008). Given this, the functioning of boards in SOEs, and MOCs as one type of SOE, is not yet well understood (Voorn et al., 2020; Whincop, 2004).

Previous empirical studies have focused on, for instance, management practices (Voorn et al., 2019), multiple principals (Krause, 2015; Voorn et al., 2019, 2020), managerial autonomy (Krause and Van Thiel, 2019), personnel governance (Papenfuß and Schmidt, 2021), entrepreneurial orientation (Tremml et al., 2022) and the diffusion of CG codes (Papenfuß and Wagner-Krechlok, 2022). Hitherto, however, the functioning of boards in MOC governance remains an empirical black box, as ‘little is known so far about boards’ (Van Thiel, 2015: 323). Hence, studies on board behaviour have only recently begun to explore the specificities of the public sector (Smith et al., 2023).

The aim of this research is to offer insights into board efficacy, and how boards eventually relate to organisational performance. We ask: Does board efficacy affect perceived organisational performance in MOCs, and if so, how?

We study boards of MOCs in Germany, where, according to corporate law, larger companies are characterised by a two-tier board structure: an executive managerial board and a monitoring supervisory board. The supervisory board, to which the chief executive officer (CEO) is accountable, is considered the most important body (Leixnering et al., 2022). This situation is similar to that in other countries that implemented two-tier systems. Figure 1 (see online) illustrates the research context, and our main research interest lies at the top-right area of the figure.

Our study considers board efficacy across various sectors. We offer, first, an empirical examination of the relevance of board efficacy to public sector organisations (Grossi et al., 2015; Van Thiel, 2015). Second, conceptually, we contribute to the literature on board involvement as a possible determinant of organisational performance (Klarner et al., 2019; Miller and Del Carmen Triana, 2009), adding a public sector perspective.

Conceptual orientation and hypotheses

Board efficacy and organisational performance

Structurally, each MOC is steered by the respective parent administrative authority/ies (Krause and Swiatczak, 2021). In addition, private law environments often demand the formation of a board of directors. Here, the particular legal system in a country makes provisions (Leixnering et al., 2022).

A one-tier board is the usual pattern for an MOC governing body in the Anglo-Saxon context. Such boards consist of executive and non-executive directors (Skelcher, 2008). In contrast, continental European countries favour two separate bodies: an executive management board and a supervisory board (Van Thiel, 2015). This dual board structure is compulsory in Germany and also in other central European countries such as Austria, Switzerland and Poland. Corporate law in, for example, France and Belgium offers a choice. In two-tier systems, the supervisory board is considered the most important body to which a CEO is held accountable (Leixnering et al., 2022).

MOC boards serve as ‘guardians of the public interest’ (Townsend, 1972: 16). On the one hand, boards have a legal duty to oversee the executive decisions in terms of financial well-being; on the other hand, boards are expected to provide consultancy and strategic direction (Klarner et al., 2019). Thus, boards must weigh up contradictory activities, ‘work as partners with managers and yet monitor and steer them’ (Otto, 2003: 134). Research by Van Thiel (2015), building on Cornforth's (2003) work, offers insights into the interplay between board tasks. Supervisory board members have the tasks ‘supervising the management’ (100%), ‘decision-making’ (71%) and ‘giving advice’ (64%).

The board's tasks are to be considered separately from the specific competencies necessary to fulfil them. Jackson and Holland (1998) developed a board self-assessment questionnaire (BSAQ), a survey instrument on the basis of in-depth interviews, to assess the perceived aspects of highly competent boards in a nonprofit context. The questionnaire was subsequently refined (Mannion et al., 2016, 2017). Effective boards are characterised by the following manifest competencies: (a) educational – making sure that all of its members are informed about the organisation and the factors driving performance; (b) analytical – acknowledgement of the complexities of the faced issues and using multiple perspectives when developing solutions; (c) political – maintaining relationships with organisational stakeholders; and (d) strategic – envisioning and shaping the future of the organisation. Since its initial development, BSAQ has undergone extensive analysis of validity, reliability and sensitivity (Mannion et al., 2017).

A study by Ugboro and Obeng (2009) detects a relationship between strategic board competencies and cost-based measures of organisational performance. McDonagh and Umbdenstock (2006), focusing on the hospital context, find board competencies associated with performance. Mannion et al. (2017) validated a revised BSAQ and found no such link.

Organisational performance in the public sector is difficult to operationalise (Thomasson, 2009). MOC performance is no exception, as many operate in non-market environments (Bernier et al., 2020; Grossi et al., 2015). MOCs are often subject to soft budget constraints, so that the strict relationship between expenditures and revenues is relaxed as exceeding expenditures are taken over by another institution – that is, the municipal owner(s) – protecting them from bankruptcy to a certain extent (Kornai, 1986). Although MOCs are controlled by local administrations through instruments such as performance contracts and corresponding reporting requirements (Van Genugten et al., 2020), performance criteria for MOCs as hybrid organisations are often ambiguous (Thomasson, 2009; De Waele et al., 2021). Relational aspects, such as benchmarking against similar organisations, have been identified for assessing performance (Perelman and Pestieau, 2020). In addition, self-assessment is also used (e.g. Daiser and Wirtz, 2021; Voorn et al., 2020).

In accordance with propositions highlighting the importance of boards in MOC governance (Leixnering et al., 2022) and because of having to reconcile interests of several groups of actors in MOCs (Mannion et al., 2017), we contend that board efficacy makes a difference with respect to organisational performance. This is because ‘good governance’ of organisations requires board efficacy and results, ultimately, in a higher level of performance (Williamson, 1984). However, research is inconclusive about how this is achieved. Here, the study by Van Thiel (2015) taught us that, parallel to the task of assuring compliance, supervisory boards are involved in providing strategic direction to the MOC and in acquiring stakeholder support. Board efficacy can therefore be viewed as a board's particular contribution (e.g. as an effective controller, strategist or educator) to organisational outcomes (Cornforth and Chambers, 2010; Mannion et al., 2017). It follows that organisational performance is in sum positively affected by the presence of board efficacy:

H1: Board efficacy is associated with a higher degree of perceived organisational performance.

Board efficacy and CEO dilemmas in MOCs

Mirroring their organisations’ ambiguous performance criteria, CEOs similarly face dilemmas in their role due to several different (at times conflicting) demands for accountability (Thomasson, 2009). MOCs often operate in highly political environments (Whincop, 2004). They have multiple principals and thus are exposed to diverging demands from their environment (Voorn et al., 2020).

As managerial decision-making is concerned with anticipating the expectations from the environment, Rizzo et al. (1970) and Rainey and Jung (2014) distinguish two types of role dilemmas. Previous research has shown that boards with high efficacy can mitigate such dilemmas (Miller and Del Carmen Triana, 2009), suggesting that in addition to a direct one, the relationship between board efficacy and organisational performance can also be indirect.

First, a vagueness of expectations, also about organisational objectives, may generate CEO role ambiguity. For example, role ambiguity makes it difficult for a CEO to pursue a clear organisational strategy. Decentralisation activities under the motto ‘let the managers manage’ added to these ambiguities, as they often led to a loss of administrative knowledge and expertise about the corporation. Thus, MOCs often operate in a ‘vacuum’ with no or few administrative steering activities (Krause and Swiatczak, 2021).

MOC boards can fill this vacuum by taking on the roles of ‘translator’ and ‘mediator’ between administration and CEO. Boards can help to develop strategies and define organisational goals, thus adding clarity by enhancing the division of labour between CEO and the board. Given this, effective boards of MOCs (that, for example, have high competencies regarding analysing complex situations and providing strategic guidance to the CEO) can assist the CEO in navigating complexity and managing the expectations from the environment. We thus argue that board efficacy reduces role ambiguities of CEOs by providing strategic guidelines and objectives:

H2a: Board efficacy is associated with a lower degree of CEO role ambiguities.

H2b: A lower degree of CEO role ambiguity is associated with a higher degree of perceived organisational performance.

Second, public policies may compete with their professional values or business ethos, leading to a second, narrower type of role dilemma for CEOs (Rainey and Jung, 2014; Rizzo et al., 1970): role conflicts relate to the contradictions between various demands or values and manifest in a CEO's difficulty in deciding which concrete action to take in a specific situation – for example, in policy implementation. These conflicts arise when professionals such as CEOs perceive stakeholder demands to be incompatible (Tummers et al., 2012). In extreme cases, such role conflicts might be manifested in policy–profession conflicts that arise when external political expectations and a CEO's professional expertise as a manager differ (Krause and Van Thiel, 2019). In contrast to the first dilemma, expectations from the environment are clear-cut but do not match with the particular identity of the CEO.

A key competence of supervisory boards in MOCs is to support the CEO in coping with challenges arising from role conflicts. Competent boards might be able to provide a buffer against these conflicts (De Boer et al., 2010). On the one hand, De Boer et al. (2010) hold that an important task of boards is to shield the CEO from external pressures. Effective boards of MOCs might have high competencies regarding regularly reaching out (externally) and talking to political stakeholders before demands reach the CEO, thus serving as a filter. On the other hand, effective boards with high educational competencies make (internally) sure that all members are informed about the issues the organisation is facing, thus being better able to assist the CEO in navigating this complexity. Such boards help to balance conflicts between, for example, political and economic values and rationalities (Jaspers, 2021). We thus posit that supervisory board competencies reduce role conflicts of CEOs:

H3a: Board efficacy is associated with a lower degree of CEO role conflict.

H3b: A lower degree of CEO role conflict is associated with a higher degree of perceived organisational performance.

Figure 2 (see online) displays the full conceptual model of the study.

Methods

Empirical context

Germany is characterised by a federal Rechtsstaat system with a strong tradition of rule by law. German local governments have maintained their longstanding tradition as direct and self-governed providers of a plethora of services (Kuhlmann and Wollmann, 2019). Although MOCs have existed for a similar length of time (Reuter, 1929), during the 1990s local governments started to separate their service providers from the core administration while retaining full ownership and control (Kuhlmann and Wollmann, 2019). These processes of decentralisation often took the form of corporatisation. In 2020, there were 12,294 MOCs in Germany with a turnover of €317billion.¹

Data collection

To test our hypotheses, we rely on a survey carried out among the CEOs of German MOCs (Krause and Van Thiel, 2019). To identify CEOs, the reports on equity holdings (Beteiligungsberichte) of the 39 largest cities (more than 200,000 inhabitants) were systematically analysed. This resulted in the identification of 1079 MOCs. Invitation letters were sent to this entire population. Two hundred and forty-three surveys were returned (response rate of 22.5%). After dismissing the responses without value for the variable(s) of interest, 167 MOCs remained for analysis.

Each of the 167 participants held an executive role and 148 had more than 3 years’ experience in managing MOCs. Only six respondents had CEO experience of less than a year. These figures suggest that the key informants were well informed and qualified, fulfilling the two main requirements for key informant selection (Daiser and Wirtz, 2021).

When comparing our sample with the total population of MOCs regarding sector and corporate status, we found that the sample was fairly representative (Appendix A, see online). In particular, the sample covered MOCs in a wide range of sectors (e.g. utilities, economic development, housing).

Measures

We based the items for our survey model on several validated constructs. The items for board efficacy are based on the BASQ, which has also been used in former board efficacy studies in a public and nonprofit sector context (e.g. Jackson and Holland, 1998; Mannion et al., 2017; Ugboro and Obeng, 2009). In two-tier systems like Germany's, the supervisory board's legal task is regarded primarily as overseeing and controlling the activities of the top management. Hence, we decided to focus on four relevant dimensions of board efficacy: analytic, political, evaluative and strategic. Since self-evaluations are sometimes distorted by social desirability bias (Jakobsen and Jensen, 2015), we decided to ask the CEOs – as the ones controlled – to evaluate the attributed competencies of their respective supervisors.

CEO role conflict items are based on measures from Rizzo et al. (1970) and Tummers (2012), adapted for use with MOCs by Krause and Van Thiel (2019) and labelled as ‘policy–profession conflict’. CEO role ambiguity items were derived from Rizzo et al. (1970) and Wright and Millesen (2008). Possible answers for these items ranged on a Likert scale from 1 (fully disagree) to 5 (fully agree).

Similar to other studies on MOCs (Daiser and Wirtz, 2021; Voorn et al., 2020), the construct ‘organisational performance’ was measured with subjective items. The three-item variable captures two important aspects of performance: market performance and stakeholder support in the political arena. The market performance item is a general performance measure that asks for a comparison with competitors on a 5-point Likert scale: ‘Please consider the performance of competitors and comparable organisations in the same sector. How would you evaluate the organisational performance of your organisation?’ (between ‘far below average’ and ‘far above average’). To capture political support as a secondary measure of performance, we asked CEOs to validate the following statements on organisational efficiency and effectiveness:

‘Municipal politicians think that our organisation is effective’ (‘fully disagree’/‘fully agree’);

‘Municipal politicians think that our organisation is efficient’ (‘fully disagree’/‘fully agree’) (both statements derived from Moynihan and Pandey, 2006).

Subjective measures for organisational performance are commonly used in the literature (Daiser and Wirtz, 2021; Voorn et al., 2020) and were our choice because the MOCs in our sample operate in quite different sectors and under quite different parameters (Appendix A, see online). This makes them difficult to compare using traditional performance indicators such as profit margins or return on equity. Also, although some MOCs offer market-oriented services (e.g. infrastructure/waste), other services are not distributed within immediate markets (e.g. social affairs/employment). The measurement scales are included in Appendix B (see online). As recommended (MacKenzie and Podsakoff, 2012) and undertaken in other studies (e.g. Daiser and Wirtz, 2021), we considered the existence of potential biases before, during and after data collection and implemented corresponding mitigation measures. A detailed description of our mitigation strategy is available from the authors.

Strategy of analysis

Our hypotheses were tested using structural equation modelling (SEM) by maximum-likelihood estimation with standardised coefficients (β) (Figure 3, see online). The analysis was carried out using the SEM function of STATA version 16.1. Kline (2015) suggests that a minimum of the following indices should be reported to assess SEM model fit: the model chi-square, the root mean square of approximation (RMSEA), the comparative fit index (CFI) and the (standardised) root mean square residual (SRMR). In addition, we also report the Tucker–Lewis index (TLI). The CFI and TLI measures indicate fit with a threshold above 0.90 and excellent fit above 0.95. The RMSEA value indicates good fit below 0.08 and excellent fit below 0.05 (Byrne, 2012). The threshold for the SRMR is below 0.08. Construct reliability (CR) and average variance extracted (AVE) were calculated to test the reliability and validity of our variables respectively.

For the mediation analysis, we relied upon the suggestions on indirect only mediation by Zhao et al. (2010), reconsidering the three-step process by Baron and Kenny (1986). We assessed the possibility of mediation with the ‘medsem’ command (Mehmetoglu, 2018).

Findings

Descriptive statistics

First, we constructed a measurement model for each of the latent variables of interest – board efficacy, CEO role conflict, CEO role ambiguity and organisational performance. The results showed a good fit between the hypothesised four-factor model and the data (CFI = 0.979; TLI = 0.974; SRMR = 0.052; RMSEA = 0.035; p > chi² 0.063). All items loaded significantly onto their appropriate factor, and AVEs signalled no problems with discriminant validity, as AVEs exceeded squared correlation (SC) values in each of the constructs (Fornell and Larcker, 1981).

The latent variable board efficacy displays an AVE of 0.43 < 0.05, signalling potential minor problems of convergent validity. As the board efficacy variable reflects more than one dimension of board efficacy, this result does not come as a surprise. However, the high Cronbach's α of 0.87 led us to assume that respective items provide a good measure of the same underlying latent construct. For each of the other variables, CRs exceeded 0.7 and AVEs > 0.5, satisfying the rules of thumb (Fornell and Larcker, 1981). Table 1 (see online) presents the means, standard deviations (SD) and correlations of the studied variables’ factor scores.

Even assuming that the observed correlations are inflated by common method bias (CMB), the increase in the coefficients owing to CMB in Table 1 should be 0.1 or less, given that the questions involve rather concrete and impersonal topics (Malhotra et al., 2006), which would still result in considerable effect sizes for the associations examined in H1 to H3.

Our mediation analysis of the factor scores suggests a partial mediation of board efficacy on organisational performance via CEO role conflict. As the confidence intervals in the Sobel, Delta and Monte Carlo method do not include the 0 value, we detect significant support for an indirect mediation (Zhao et al., 2010) (Appendix C, see online). However, a full mediation (Baron and Kenny, 1986) has to be rejected: there is no direct effect of board efficacy on performance in the first place.

Structural path analyses

Based on the findings of the structural equation model (Figure 3), we reject H1, as we do not find any significant direct effect of board efficacy on organisational performance (p = 0.486). The results of the model are also supported by the correlation results (Table 1).

Turning to H2a and H2b, the observed results do not support our initial reasoning. We have to reject H2a, as board efficacy does not significantly decrease CEO role ambiguity (p = 0.16). However, we confirm H2b – a higher degree of CEO role ambiguity is associated with a lower degree of perceived organisational performance, and vice versa (β = −0.46, p < 0.001).

We can accept H3a and 3b, as the data suggest a negative relationship between the board efficacy factor (β = −0.25, p < 0.01) and the magnitude of a CEO's role conflict. Aside from that, CEO role conflict (β = −0.33, p < 0.01) provides for a significant negative relationship with organisational performance (Table 2, see online).

As CEO role conflict is a correlate of organisational performance, we support the perspective that board efficacy influences organisational performance by mitigating stakeholder conflicts in the political arena. However, instead of a direct relationship, we find evidence that the relationship is indirect: competent boards alleviate policy–profession conflicts of CEOs, thus easing obstacles to organisational performance. We will unpack these results in the next section.

Discussion

In this section, we reflect on the implications of the findings for MOCs as hybrid organisations. First, we observe that board efficacy such as strategic and analytical thinking, stakeholder orientation or board self-reflection seem to be complementary and quite consistent in the sample. With few exceptions, each of these dimensions loads on the same factor so that boards that drive perceived organisational performance are characterised by different attributions that are simultaneously present. This also means that there is no clear distinction between pure compliance-based or stakeholder-oriented tasks in MOC boards, as sometimes suggested by rival theories (e.g. stewardship vs agency theory; Van Slyke, 2007). With this, we supplement the results from Van Thiel's (2015) study that offered a definition of board archetypes in a two-tier board system, but these archetypes were not identified in their pure form in a subsequent empirical analysis.

Second, the results do not point towards a direct board effect on perceived organisational performance, as predicted by H1. In essence, there was no significant direct correlation between board efficacy and perceived performance. This result is in line with some of the former studies in one-tier systems (Mannion et al., 2017; Ugboro and Obeng, 2009). A first possible explanation for this result in relation to two-tier board systems might be that the notion of supervisory boards relies on the concept of neutral and rational oversight without any involvement in day-to-day managerial activity. From a legal point of view, supervisory boards in Germany do not take any direct actions that affect the performance of a company. However, our analysis shows that boards which are perceived as competent are indeed involved in long-term strategic thinking and political debates. Hence, there might be an indirect mechanism present that drives perceived organisational performance, but this mechanism is much more subtle and therefore there is no direct manifestation. A second explanation relates to the boundaries of measuring the ‘perceived performance’ variable. We recommend that further research uses multiple, including more objective, operationalisations of the variable (although different sectors in which MOCs operate have different notions of performance). In addition, subjective performance might be operationalised in different ways, such as contribution to public value and social equity (Daiser and Wirtz, 2021; Voorn et al., 2020). Also, the temporal perspective is a pressing issue that needs to be addressed in further research, as the relationship between board efficacy and perceived performance might vary across longer periods of time.

Third, a further tranche of hypotheses (H2a/b and H3a/b) was based on the MOC context of plural accountability demands for CEOs and perceived organisational performance. Corroborating the multiple principals perspective, MOCs suffer from multiple definitions of roles and responsibilities for top-level executives (Voorn et al., 2019). Conflicts and compromises about roles, responsibilities and objectives are essential in democracy-based hybrid organisations and, therefore, willingly accepted (Jaspers, 2021). Professional identity conflicts may involve trade-offs between financial (e.g. cost reduction, profitability) and non-financial objectives (e.g. matters of security, public health or ecology). However, when conflicts cannot be resolved for a long period, they become risky or even hazardous (Krause, 2014).

The results can also be reflected with respect to potential issues with moral hazard (Figure 1). In the MOC setting, moral hazard can be conceived as a consequence of managerial value conflicts between policy content and professional commercial incentives (Van Thiel, 2016). For example, taking business risks for MOC growth beyond the financial capacities of a municipality might conflict with the public purpose of the MOC. Taking these risks may, however, also be interlinked with individual incentives, such as from performance-related pay schemes. An effective board may reduce corresponding contract enforcements costs (Miller-Millesen, 2003). Hence, if such conflicts are recognised in the boardroom, they are more likely to be resolved. However, if clashes are not adequately addressed, role conflicts may result in disappointment and demotivation among CEOs when implementing policies (Baier et al., 1986).

Role dilemmas can reduce individual and, in turn, organisational performance (e.g. Jaspers, 2021; Rainey and Jung, 2014; Rizzo et al., 1970). On the individual level, public servants are often confronted with conflicts between different dimensions of value creation – that is, creating individual value versus creating value for society (Jaspers, 2021). On a managerial level, policy–profession conflicts may impede time-sensitive decisions or compromise managerial autonomy (Krause and Van Thiel, 2019). Accordingly, H3b, according to which a lower degree of CEO role conflict is associated with a higher degree of perceived organisational performance, was strongly supported by our data. Manifested CEO role conflicts – when present – can lead to a decline in organisational performance.

Nevertheless, the magnitude of conflict is context-based. According to Matland (1995), policy implementation strategies are strongly influenced by the levels of conflict and ambiguity in the political environment. Dahrendorf (1958) suggests that policy conflict arises when there is an incompatibility of objectives, interdependence of actors and a perceived zero-sum element to the interactions. In a situation of permanent conflict, actions tend to be a result of a bargaining process. For example, an engineer, an economist and a lawyer may prefer very different means to carry out even agreed-upon policies (Matland, 1995).

In H3a, we postulated that board efficacy is associated with a lower degree of CEO role conflict. This hypothesis is confirmed by the results. Indeed, boards have the power to mitigate stakeholder conflicts, so enabling an organisation to set clear objectives and define distinct accountabilities, especially when a CEO has to consider trade-offs between financial and non-financial objectives. The literature has identified various coping strategies at hand to mitigate value conflicts in public organisations (Vakkuri et al., 2021). One of these strategies is what Jaspers (2021) refers to as ‘hybridisation’ – that is, a specific way of seeking coexistence between different values by sustaining distinct implementations that pursue competing values. This can be achieved, for instance, through fostering cooperation. Another strategy might be ‘biasing’ – that is, giving preference to values which are most consistent with a dominant discourse at the expense of other values (Jaspers, 2021). Further studies might particularly investigate the coping strategies of boards that score highly in terms of their competencies.

Fourth, public sector organisations and their CEOs are also faced with the fuzziness of concepts, such as ‘public interest’ or ‘public value’ (Jaspers, 2021; Whincop, 2004). A resulting ambiguity might make it difficult for CEOs to introduce a commonly accepted hierarchy of values and objectives in MOCs. Policy ambiguity arises when there is low clarity about the goals or means to be pursued (Matland, 1995). He suggests that in the design stage of a policy, goal conflict and ambiguity are often considered a trade-off because goal clarity triggers further conflict. However, in the implementation stage, ambiguity influences the likelihood that the policy is uniformly understood and the probability that local factors play a role. This vagueness of expectations may generate role ambiguity on the side of the CEO. Although it could be argued that a lack of clarity about expectations from boards may relieve CEOs from pressure and allows them greater autonomy in decision-making, Voorn (2023) points out that politicians on supervisory boards might be rather more inclined to use MOCs for blame-shifting than for shaping organisational values and objectives.

According to our results, role conflict and role ambiguity were closely interlinked. In such cases, Matland (1995) suggests that outcomes will depend on which actors are actively involved in the implementation process and that there is an inherent danger that policies are only implemented symbolically. This, in turn, is potentially impairing the performance of public sector organisations (Caillier, 2016; Jung, 2014; Lin et al., 2017).

In support of H2b, we find that CEO role ambiguity indeed reduces perceived organisational performance. However, H2a has to be rejected. The supervisory board does not directly compensate for role ambiguity due to a general vagueness in roles and objectives. An explanation for this might be that the members of supervisory boards in MOCs can have multiple identities and identifications themselves (Hillman et al., 2008). Although such individual task conflicts in supervisory boards are not something ‘bad’ per se, as ‘[t]ask conflict helps boards to avoid inferior decision-making and groupthink’ (Heemskerk et al., 2016: 234), it is not helpful for reducing CEOs’ role ambiguities.

Taken together, although we did not find support for a direct board efficacy–performance relationship in MOCs, we observed that board efficacy mitigates CEO role conflicts. Boards do seem to have a ‘buffering’ role (De Boer et al., 2010; see also Bourdeaux, 2008) with respect to the demands and pressures that CEOs of MOCs are confronted with in an ever more complex public sector, suggesting a ‘catalyser’ relationship.

Conclusion

Previous studies on board tasks and competencies in one-tier public sector boards have identified certain positive effects on organisational performance (e.g. Mannion et al., 2017). Also, strategic activities of the board can be especially important for driving organisational profitability, effectiveness and efficiency (Daiser and Wirtz, 2021). However, the effect of board efficacy was found to be inconclusive when considering performance (Ugboro and Obeng, 2009).

Addressing calls to investigate the functioning of boards in SOEs (Grossi et al., 2015; Van Thiel, 2015), this is the first study that explicitly focuses on the efficacy of supervisory boards in various sectors. The study at hand offers an empirical investigation of four different board efficacy attributions and adds to a more nuanced understanding of how they relate to performance in MOCs as hybrid organisations. With this, we contribute to the wider literature on board involvement as a determinant of organisational performance (e.g. Klarner et al., 2019; Miller and Del Carmen Triana, 2009), offering a public sector perspective. The results imply that particular attention needs to be paid to the enhancement of competencies of board members, such as through selection and training, and their collaboration as a group.

This study has a number of limitations. Due to the complexity of the issues involved, the performance effects of various degrees of MOC ownership and legal forms (for example, as considered in the research by Vining et al., 2015) were not covered in this study. Likewise, we did not deal with direct effects of external characteristics such as the degree of regulation in a sector or competition in the market. It also needs to be emphasised that we use self-reported measures to investigate the key constructs, although these measures are commonly used in the area of MOC performance (Daiser and Wirtz, 2021; Voorn et al., 2020) and board literature (BSAQ; Mannion et al., 2017). This also extends to measuring board efficacy through the eyes of the CEOs. Finally, it must also be noted that the sample examined is rather small, especially in view of the extensive relationships that are investigated in the structural equation model applied here. Thus, the conclusions are subject to these limitations, especially with regard to generalisability of the results. Although our model displays a good fit with the data, the mediation itself has to be critically reflected. The mediation analysis only brings significant support for a partial mediation and there is still a possibility of unconsidered, confounding variables. We also suggest that the mediation result is a consequence of the small sample size involved – further studies might reinspect the mediation hypothesis in larger samples.

Next to focusing on different contexts, future studies might also discuss the effects of board efficacy on other dependent variables – for example, non-financial results such as conformance with rules or sustainability measures. Concerning CEO role ambiguity, we suggest further qualitative research on coping strategies within and beyond the context of MOC supervisory boards (Jaspers, 2021). There is a need to investigate further topics like board composition or board dynamics in MOCs, possibly (also) using less subjective data. We invite future research to target these ‘blank spots’.

Supplemental Material

sj-docx-1-ras-10.1177_00208523231219983 - Supplemental material for ‘Mind the board!’: Board efficacy, managerial role dilemmas and performance in municipally owned corporations

Supplemental material, sj-docx-1-ras-10.1177_00208523231219983 for ‘Mind the board!’: Board efficacy, managerial role dilemmas and performance in municipally owned corporations by Tobias Krause, Tobias Polzer and Marcus Sidki in International Review of Administrative Sciences

Footnotes

Acknowledgements

We thank the participants and discussants of the conferences and workshops where this work was presented (International Research Society for Public Management (IRSPM) conference, 2021; Comparative International Governmental Accounting Research Network (CIGAR) conference, 2021; and International Centre of Research and Information on the Public, Social and Cooperative Economy (CIRIEC)/International Journal of Public Sector Management (IJPSM) workshop, 2023), for their constructive feedback and suggestions. We are also grateful to the two anonymous reviewers and the editors of International Review of Administrative Sciences for their thoughtful comments on our manuscript. As always, all remaining errors and omissions are entirely our own.

Declaration of conflicting interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

ORCID iDs

Tobias Polzer

Marcus Sidki

Supplemental material

Supplemental material for this article is available online.

Notes

Tobias Krause is professor of public and nonprofit management at the Frankfurt University of Applied Sciences in Frankfurt am Main (Germany). His research focuses on hybrid organisations, municipally owned corporations and digital government. He has published in international outlets such as Public Management Review, Review of Public Personnel Administration and Journal of Public Budgeting, Accounting & Financial Management.

Tobias Polzer is assistant professor at the Institute of Organization Studies at WU Vienna University of Economics and Business (Austria). He studies digital transformation in the public sector, public (financial) management and governance and public procurement. He recently co-curated a Special Issue on the digital transformation of nonprofit organisations in British Accounting Review.

Marcus Sidki is professor of economics at Ludwigshafen University of Applied Sciences (Germany) and an honorary professor at the Technical University of Kaiserslautern-Landau. His research interests lie in the field of the economics of public enterprises. He has published in scientific journals such as European Journal of Political Economy, Public Money & Management, Journal of Management and Governance and Annals of Public and Cooperative Economics.

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