The Strategic Use of Corporate Board Committees

See, for example, U.S. Securities and Exchange Commission, Division of Corporate Finance, Staff Report on Corporate Accountability (Washington, D.C.: U.S. Government Printing Office, 1980); American Bar Association, Committee on Corporate Laws, “The Overview Committees of the Board of Directors,” Business Lawyer, 35 (1980): 1335–1364.

Ethe Solomon Pegram Roger M. , Corporate Directorship Practices (New York, NY: National Industrial Conference Board, Studies in Business Policy, No. 90, 1959); Bacon Jeremy , Corporate Directorship Practices (New York, NY: National Industrial Conference Board, Studies in Business Policy, No. 125, 1967); Bacon Jeremy , Corporate Directorship Practices: Membership and Committees of the Board (New York, NY: The Conference Board, Conference Board Report No. 588, 1973); Harrison J. Richard , The Committee Structure of Corporate Boards of Directors (Unpublished doctoral dissertation, Graduate School of Business, Stanford University, 1986). One committee not shown in Figure 1, for lack of historical data, is the pension committee, which has become more common following passage of the Employee Retirement and Income Security Act of 1976 (ERISA). This committee, sometimes granted an independent or quasi-independent status by the board with fiduciary responsibility for the pension fund, was found in 32% of the manufacturing firms I examined in 1982.

McGrath Phyllis S. , Corporate Directorship Practices: The Public Policy Committee (New York, NY: The Conference Board, Conference Board Report No. 775, 1980); Windsor Duane , “Public Policy and Corporate Ethics Committees,” in Greanias George C. Windsor Duane , eds., The Changing Boardroom: Making Policy and Profits in an Age of Corporate Citizenship (Houston, TX: Gulf, 1982).

Andrews Kenneth R. , The Concept of Corporate Strategy, revised edition (Homewood, IL: Richard D. Irwin, 1980).

SEC, op. cit., p. F156.

U.S. Securities and Exchange Commission, “Securities Exchange Act Release No. 15384,” Federal Register, 43 (1978):58522–58532.

American Bar Association, Committee on Corporate Laws, “Corporate Director's Guidebook,” Business Lawyer, 33 (1978): 1620–1644; American Bar Association, op. cit., (1980). Throughout this article, I refer to the American Bar Association for convenience; the articles referred to were actually prepared by its Committee on Corporate Laws, which provided the arguments and recommendations discussed.

SEC, op. cit., (1980).

ABA, op. cit., (1980).

Jones Thomas M. , “Shareholder Suits: Good News and Bad News for Corporate Executives,” California Management Review, 23/4 (1981):77–86.

Maurer J.G. , Readings in Organization Theory: Open-System Approaches (New York, NY: Random House, 1971), p. 361.

Parsons Talcott , “Suggestions for a Sociological Approach to the Theory of Organizations,” Administrative Science Quarterly, 1 (1956):63–85.

Parsons Talcott , Structure and Process in Modern Societies (New York, NY: Free Press, 1960); Andrews , op. cit.

Perrow Charles , Organizational Analysis: A Sociological View (Monterey, CA: Brooks/Cole, 1970); Dowling John Pfeffer Jeffrey , “Organizational Legitimacy: Social Values and Organizational Behavior,” Pacific Sociological Review, 18 (1975): 122–136.

Meyer John W. Rowan Brian , “Institutional Organizations: Formal Structure as Myth and Ceremony,” American Journal of Sociology, 83 (1977):340–363.

Meyer Rowan , op. cit.

DiMaggio Paul J. Powell Walter W. , “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields,” American Sociological Review, 48 (1983):147–160.

This position was frequently taken by directors I interviewed anonymously in the early 1980s.

Harrison , op. cit.

Ethe Pegram , op. cit.; Bacon , op. cit., (1967); Bacon , op cit., (1973); SEC, op. cit., (1980); U.S. Securities and Exchange Commission, “Analysis of Results of 1981 Proxy Statement Disclosure Monitoring Program,” Federal Register, 47 (1982): 10792–10804.

Harrison , op. cit.

Shapiro Irving S. , “Corporate Governance,” in Williams Harold M. Shapiro Irving S. , eds., Power and Accountability: The Changing Role of the Corporate Board of Directors (Pittsburgh, PA: Carnegie-Mellon University Press, 1979), p. 52.

SEC, op. cit., (1980).

SEC, op. cit., (1980), p. F65, quoting a 1978 SEC report.

Quoted in SEC, op. cit., (1980), p. F66.

Ibid.

Williams Harold M. , “Corporate Accountability and Corporate Power,” in Williams Shapiro , eds., op. cit., p. 19.

See, for example, Perkins Roswell B. , “Avoiding Director Liability,” Harvard Business Review, 64 (May/June 1986):8–14.

ABA, op. cit., (1980).

SEC, op. cit., (1980); ABA, op. cit., (1978); ABA, op. cit., (1980).

ABA, op. cit., (1980).

Ibid., pp. 1352–1353.

Ibid.

Ibid., p. 1342.

Ibid., p. 1338.

McSweeney Edward , Managing the Managers (New York, NY: Harper and Row, 1978).

Mace Myles L. , Directors: Myth and Reality (Boston, MA: Division of Research, Graduate School of Business Administration, Harvard Business School, 1971). The terms “strategy formulation,” “strategic planning,” and “developing strategy” are used interchangeably throughout this section.

Brown James K. , Corporate Directorship Practices: The Planning Committee (New York, NY: The Conference Board, Conference Board Report No. 810, 1981); Henke John W. Jr. , “Making the Board of Directors' Involvement in Corporate Strategy Work,” paper presented at the Strategic Management Society Conference, Paris, October, 1983; Waldo Charles N. , Boards of Directors: Their Changing Roles, Structure, and Information Needs (Westport, CT: Quorum, 1985). Henke noted that although a majority of board chairs responding to his survey reported that their boards were not involved in strategic planning, the responses indicated that nearly all boards were involved in making decisions in areas related to strategy, such as resource allocation. The methodologies of each of the three studies referenced here will be described later.

See, for example, Andrews Kenneth R. , “Directors' Responsibility for Corporate Strategy,” Harvard Business Review, 58 (November/December 1980):30–42.

Ibid.

See, for example, Statement of the Business Roundtable, “The Role and Composition of the Board of Directors of the Large Publicly Owned Corporation,” Business Lawyer, 33 (1978):2083–2113; Andrews , The Concept of Corporate Strategy, op. cit.; Andrews , “Directors' Responsibility for Corporate Strategy,” op. cit.; Andrews Kenneth R. , “Replaying the Board's Role in Formulating Strategy,” Harvard Business Review, 59 (May/June 1981):18–26; Andrews Kenneth R. , “Corporate Strategy as a Vital Function of the Board,” Harvard Business Review, 59 (November/December 1981): 174–184; Henke , op. cit.; Kreiken J. , “Board Role in Strategic Planning and Resource Allocation,” in Mattar Edward P. Ball Michael , eds., Handbook for Corporate Directors (New York, NY: McGraw-Hill, 1983); Waldo , op. cit.

A third, highly controversial issue related to the extent of board involvement in strategy, which will not be discussed here, is whether the board chair and CEO positions should be held by the same person.

Andrews , “Corporate Strategy as a Vital Function of the Board,” op. cit., p. 174. Waldo , op. cit., agrees with Andrews on the full board's role, but has a different view of the role of the strategy committee, to be discussed later.

See, for example, Statement of the Business Roundtable, op. cit.; Kreiken , op. cit.

Henke , op. cit.; Waldo , op. cit. Henke's study was based on a survey of the board chairs of 234 large American firms, and Waldo's study was based on a survey of 163 directors from 50 large American manufacturing firms; both surveys were apparently conducted in the early 1980s, although neither author provides this information. Waldo found that no director he surveyed reported that his board was involved in strategy formulation.

Andrews , The Concept of Corporate Strategy, op. cit.; Andrews , “Directors' Responsibility for Corporate Strategy,” op. cit.

Brown , op. cit.

Henke , op. cit.; Bailout Hassan , “Strategy Committees in Large Manufacturing Firms: Empirical Research and Recommendation for Further Investigation,” unpublished paper, School of Management, University of Texas at Dallas.

Brown , op. cit.

Harrison , op. cit.

Andrews , “Corporate Strategy as a Vital Function of the Board,” op. cit.

Henke , op. cit.

Brown , op. cit.

Kahneman Daniel Tversky Amos , “Intuitive Prediction: Biases and Corrective Procedures,” Management Science, 12 (1979):313–327.

Andrews (see Note 39); Waldo , op. cit.

Brown , op. cit.; Henke , op. cit.

Brown , op, cit.; Bailout , op. cit.; and my proxy study.

Brown , op. cit.

Waldo , op. cit.

Andrews , “Directors' Responsibility for Corporate Strategy,” op. cit.; Henke , op. cit.

Henke , op. cit.

Andrews , “Corporate Strategy as a Vital Function of the Board,” op. cit., pp. 175, 181, respectively.