A study on board of directors and organizational performance

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1985
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Virginia Polytechnic Institute and State University
Abstract

This dissertation reports an investigation of the relationship between board strategic management functions and organizational performance. This dissertation provides a framework for understanding the influence of boards of directors in decision making, planning, control and operation, and financial performance of the firms. Based on the conceptual framework, it is argued that an effective board of directors will have a positive relationship with performance. Four hypotheses stemming from the conceptual framework were used to relate boards' strategic management functions and organizational performance.

The research was conducted in Malaysia, and the organizations used for the study were public enterprises. Forty-two firms in three industries of the manufacturing sector were selected for the study. These firms were building materials, food, and wood-based. industries. Boards' strategic management functions, the independent variables, consisted of the boards’ role in decision making, planning, control, and board operation. Organizational performance, the dependent variable, was operationalized by using financial indicators: return on assets, profit margin, average rate of growth in profit, average rate of growth in assets, and average rate of growth in sales. Correlation, multiple regression, and t-test analyses were used to confirm or reject the four research hypotheses. Besides these analyses, the dissertation provided information on the profile of the boards of directors of the three industries in six different areas: size, age, occupation, educational level, specialization, and business experience of the directors.

The findings showed that there was no consistent pattern in the relationship between board strategic management functions and organizational performance for all the three industries. The data analysis failed to support the conceptual framework which indicated that there should be a positive relationship between an effective board and organizational performance.

The results of the dissertation were discussed with respect to major findings and significance to management theory and practice. The dissertation concluded with a discussion on the limitations of the study and suggestions for future research.

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