Toward a Behavioral Theory of Boards and Corporate Governance

Review

A coherent alternative to an economic approach of corporate governance is missing. In this paper we take steps towards developing a behavioral theory of boards and corporate governance.

Building upon concepts such as political bargaining, routinization of decision making, satisficing, and problemistic search, a behavioral theory of boards and corporate governance will focus more on (1) interactions and processes inside and outside the boardroom; (2) the fact that decision making is made by coalitions of actors and objectives are results of political bargaining; and (3) the notion that not only conflicting, but also cooperating, interests are parts of the boards' decision making and control over firm resources.

The consequences are a new research agenda for boards and corporate governance. The agenda will focus on actual instead of stylized descriptions of board behavior. In a behavioral perspective the emphasis on problems of coordination, exploration, and knowledge creation may dominate over problems of conflict of interest, exploitation, and the distribution of value. A future research agenda based on a behavioral framework calls for novel and adventurous research designs.

A behavioral theory of boards and corporate governance will be closer to actual board behavior than the traditional economic approach and research about boards and corporate governance may thus become more actionable for practitioners.