“Boards are sometimes portrayed as just storefronts, with the management team fully driving the strategic change,” he says Edward J. Zajacthe James F. Beré Professor of Management and Organizations at Kellogg.
Zajac wondered if effectiveness might differ among individual managers. Having served on several boards, “I’ve always been curious about why certain directors’ comments tend to stick around and resonate more with the rest of the group,” he says.
Zajac had a hunch about the kind of managers who could be most influential: namely, those who bring to the boardroom a combination of deep and broad expertise, spanning multiple industries, companies and corporate strategies. “While both breadth and depth are appreciated” in the paintings as a whole, Zajac explains, “what has not yet been addressed is the possibility of finding these two positive traits in a single individual. I don’t want to call them ‘unicorns’, but the idea is that these people, with their enhanced competence, confidence and credibility, can be very influential in driving strategic change.”
To address this possibility, Zajac and his editor, Razvan Lungeanu of Northeastern University, analyzed the prior board experience of 750 new board members from 472 companies and then tracked the strategic evolution of these companies for several years after the new directors joined. Zajac did find the unicorns that were his board members—and as he suspected, they exerted significant influence on their companies’ big-picture strategy. For example, adding a deep and broad manager (as opposed to one lacking both) with experience in using innovation as a form of competitive differentiation translates into a 30 percent difference in the R&D activities of the new firm one year later.
These results have implications for how companies should evaluate potential board members. “You want your senior management team members to have depth and breadth,” says Zajac. “So why wouldn’t you want your board members to do the same?”
The qualities of a good board member
“Most people emphasize the role of managers as observers, exercising independent oversight and keeping everyone honest,” explains Zajac. “But what they also do is give advice and counsel to the organization around the overall strategic direction. This is what we wanted to examine in our study.”
To explore the impact that broad and deep managers might have on firms’ strategies, Zajac and Lungeanu first had to define what ‘broad’, ‘deep’ and ‘strategy’ mean in empirical terms. For each of the 750 board members studied, the researchers measured depth as the number of years a director had served on the board of a particular company or in a particular industry. Meanwhile, breadth meant the number of different companies and industries in which a manager had deep experiences.
The researchers also analyzed a manager’s prior exposure to different firms strategies. Building on previous empirical research that identified seven general strategies (for example, “innovative differentiation,” in which a firm differentiates itself from competitors by developing new products and services), Zajac and Lungeanu examined how well each of the 472 firms in their data set adhered to in these strategies.
They did this by analyzing companies’ performance reports and rating the importance—using a seven-point scale—that each company gave to a particular strategy. These firm-level measures were then used to capture the strategic breadth of each director who had served on the firms’ boards, based on the assumption that board members learn from their first-hand exposure to the strategies of the firms they oversee. .
Finally, the researchers had to measure a manager’s impact on the company’s strategy. The directors studied by Zajac and Lungeanu had served on the board of directors of one of the 472 companies that went public in one of three different periods (1997, 2001, or 2004). Focusing on companies that had just gone public made it easy to observe how each manager influenced the company’s strategy. “The idea is that if you suddenly jump into the pool, how much will you do?” says Zajac.
To quantify this “splash,” the researchers measured the difference between firms’ strategy evaluations before and after a manager’s arrival in two ways: “nondirectional strategic change,” meaning a significant departure from the status quo in any direction, and “directional strategic change”, meaning a change that aligns with the board member’s past strategic experiences.
“This allows us to assess whether the new corporate directors are just shaking things up, or whether they are also moving the company more towards the strategies they have come to know best,” explains Zajac.
Are directors influential? Yes, but some much more than others.
After quantifying and analyzing the interactions among all these components—the combined depth and breadth of experience of the new directors, the composition of the boards on which those boards joined, and the strategic change experienced by the companies overseeing those boards—the Zajac and Lungeanu found evidence of a particularly influential type of corporate manager.
The more breadth and depth incoming managers had in their backgrounds, the greater their influence on corporate strategy (compared to managers who were less broad and deep). Additionally, new broad and deep managers achieved non-directional change as well as directional change, indicating that it was not simply a case of firms selecting managers whose skills aligned with the firm’s existing strategic goals—rather, it was managers who they were moving the needle. (The researchers looked only at whether managers successfully exercised their influence, not whether their decisions helped or hurt the company’s profits.)
While this result suggests that some directors may have more influence than others, Zajac and Lungeanu also wanted to examine the possibility that this influence may be reduced on some boards. Specifically, they believed that two types of corporate boards would prove more resistant to the ideas of new directors—namely, those boards whose members change relatively infrequently and those whose members tend to serve for similar periods of time.
Both traits indicate that the directors have likely grown together as a team and may be resistant to new or opposing perspectives, Zajac says. “It’s like going to a dinner party as the new guest. If everyone else has been together for a long time and meets regularly, chances are it will be difficult for you to make a dent in any collective conversation.”
Indeed, in these types of boards, the authors found that new managers—even those with considerable breadth and depth—were significantly less influential than they otherwise would have been.
Corporate managers can drive strategy
These findings contribute new evidence to the ongoing debate about whether board members are truly capable of driving strategic change. “We are saying that if new managers have a certain expertise profile, they are more likely to make a strategic difference to a company,” says Zajac.
In addition, their results indicate the kinds of expertise that board candidates should emphasize on their resumes and that companies should consider. “If you’re a narrow technocrat on a particular subject – for example, everyone knows you as an IT guy – but you can show that you can also explain broader management issues and see things at a bigger picture level, that makes you a more valuable director.” , says Zajac.
But the stakes of the investigation go far beyond boardroom dynamics.
“Corporate boards increasingly give a lot of advice on the overall strategic direction of the organization,” says Zajac. “So if more board members are able to combine depth and breadth, that could lead to better collective decision-making for the organization as a whole.”
