Corporate governance and board performance: empirical evidence from Pacific Island countries

Namoga, Morris O. (2011) Corporate governance and board performance: empirical evidence from Pacific Island countries. PhD thesis, James Cook University.

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Achieving adequate economic growth is crucially important for the improvement of standards of living and the livelihoods of people in the Pacific island countries (PICs). A successful business sector is an important prerequisite for economic growth in the Pacific islands. However, the inability to attract investment capital, inefficiency, poor performance and even corporate failures, have been common phenomena in the PICs. Poor performance of the business sector has weakened its role as the engine of economic growth in the PICs. It has been widely held that the lack of good corporate governance practice in the business sector is largely responsible for such poor performance. Consequently, boards of directors have come under heavy criticism and scrutiny in the PICs, often accused for being ineffective, corrupt and lacking the ability to drive success in business enterprises. As such, an in-depth understanding of how boards of directors operate is of utter importance not only for academic inquiries but also for government and industry policy developments in the PICs. This thesis examines the role of boards of directors and the factors that affect the board's ability to perform their roles in the PICs, by focussing on two countries, Fiji and Solomon Islands.

The board is seen as a vital governance mechanism that plays an important function in business. How boards are structured, the processes in which they are involved and the role they play vary across different types of firms as well as countries, which often have important implications on how effective boards perform their roles. In the PICs, board size, composition, diversity and multiple directorships are often driven by political and socio-cultural motives (particularly in SoEs), not by economic or sound managerial motives. How such board attributes would promote effectiveness in boards is questionable. This thesis investigates if (1) board attributes have a direct effect on board performance; (2) the causal effect of board attributes on board performance occurs through the influence of board processes; and (3) there exist causal effects between different board processes which affect board performance.

A mediation model was developed for the investigation. Survey data were obtained from boards of businesses in Fiji and Solomon Islands. The factor/ordinal structure of board process and performance indicators were analysed and examined using CATPCA (categorical principal component analysis). The bootstrap technique was also used to test the mediation model. The study found that (1) the board attributes of size, composition, diversity and multiple directorships affect board performance through the effects of board processes such as effort norms, cognitive conflicts, board cohesiveness, and the use of knowledge and skills, and (2) the board processes of CEO/board relationships, board motivation, affective conflict and board information flow also affect board performance through the processes of effort norms, cognitive conflicts, board cohesiveness and the use of knowledge and skills.

This study makes the following important contributions to the corporate governance literature: (1) board attributes do not necessarily directly affect board performance, but through the influence of board processes; (2) different board process elements also influence each other which in turn affect board performance; (3) the bootstrap technique is a useful tool in overcoming limited data problems associated with corporate governance research, especially in developing economies; and (4) it adds to the understanding of governance issues and challenges in developing economies in general, and in the PICs in particular.

In terms of government and industry policy development in the PICs, the contributions of this study include: (1) the establishment of policy guidelines on board appointments; (2) the improvement of decision-making regarding the structural design of boards; and (3) the formulation of corporate governance codes.

The key implication emanating from the findings of this study is that to improve board performance in the PICs, policy and decisions regarding the size, composition, diversity and multiple directorships should be based on a sound understanding of (1) how board attributes influence board processes, and (2) how different board process elements influence each other. Future board appointments must be made by judging a member's capability to enhance the board's performance, but not by political and socio-cultural motives. Only by doing so, can the boards of directors be expected to better contribute to the business sector's growth and hence the overall economic growth in the PICs.

Item ID: 18929
Item Type: Thesis (PhD)
Keywords: board members, board performance, board recruitment, board selection, board structure, business performance, company boards, corporate effectiveness, corporate governance, corporate policies, corporate performance, decision making, developing economies, Fiji, governance effectiveness, Pacific Islands, Solomon Islands, success in business
Date Deposited: 12 Apr 2012 23:49
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1503 Business and Management > 150303 Corporate Governance and Stakeholder Engagement @ 100%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9104 Management and Productivity > 910402 Management @ 34%
91 ECONOMIC FRAMEWORK > 9101 Macroeconomics > 910103 Economic Growth @ 33%
91 ECONOMIC FRAMEWORK > 9104 Management and Productivity > 910499 Management and Productivity not elsewhere classified @ 33%
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