Corporate boards: the new corporate leaders

Abstract

The historic view that corporate leaders serving on company boards are merely the legal stewards of shareholders is no longer the best explanation for the role of directors. This stakeholder theory is too simplistic to explain the many differing and sometimes competing interests of inside and outside directors of corporations. Based on large-scale research, we conclude that company directors' roles have become more complex and require a sophisticated skill level to perform well. We find in longitudinal research from 2006-2008 that investors are looking for boards with a diverse set of talents and we speculate that leadership talent is a key ingredient for board success. Stakeholder theory of audit and oversight appears to have been replaced by the "Commitment Theory" where directors affiliate with firms for some intangible greater good of "wishing to contribute". This might indicate a closer and more deeply rooted connection with the outcomes and ideals of firms, and we explore the foundations for this commitment. We also identify a set of leadership skills which are likely to be required from company board directors, in order to convert their enthusiastic commitment into practical relevance. We conclude that committed board directors are essential to establishing good leadership in companies.