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Power and trust in board–CEO relationships

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Abstract

In this paper we develop and test a theoretical model that reduces relational risks to solve the puzzle of conflicting task requirements imposed on boards of directors in listed companies. Doing so unites two seemingly conflicting tasks—board control and service tasks—through examining relational risks between the board and the CEO. We also present two mechanisms that could reduce relational risks. One is board power over the CEO, and the other board trust in the CEO. Practitioners could apply these two mechanisms to achieve better performance of board control and service tasks simultaneously. We test hypotheses using 441 survey responses collected in 2005. The result shows a good fit between the model and survey data, indicating examining relational risks is a rewarding approach to understanding conflicting board task performance, and board control over the CEO and board trust in the CEO are two effective mechanisms to reduce relational risks.

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Notes

  1. The data collection is financed by the Norwegian Research Council, Innovation Norway, NHO, Oslo Stock Exchange and other investors in Norway. The sample was randomly selected within large-, medium- and small-sized Norwegian firms. Employee numbers, annual costs and operational incomes were used as selection criteria. The sample includes areas of finance, services, industry and manufacturing. There are 985 CEO responses out of a sample of 4,530 in the 2003 survey, with a response rate of 21%. There are 973 CEO responses out of a sample of 2,954 in the 2005 survey, with a response rate of 33%. There is no evidence for response bias based on the firm size for both surveys. In addition, responses by board chairpersons and other board directors were collected to verify responses by CEOs in the two surveys.

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  1. Department of Management, Coggin College of Business, University of North Florida, 1 UNF Drive, Jacksonville, FL, 32224, USA

    Pingying Zhang

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Correspondence to Pingying Zhang.

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Table 3 Please indicate to which degree you agree with the following statements
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Zhang, P. Power and trust in board–CEO relationships. J Manag Gov 17, 745–765 (2013). https://doi.org/10.1007/s10997-011-9188-z

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