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Power Dimensions in the Board and Outside Director Independence: Evidence from large industrial UK firms

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  • Henry Udueni

Abstract

This paper examines the independence of outside directors in large UK corporations. It also establishes the presence of different power dimensions in British Boards. The evidence from the study suggests that while the proportion of outside directors is about 48% (consistent with previous studies), only 40% could be regarded as semi‐independent with less than 20% of them truly independent. Using the analytical schema of Finkelstein (1992), the paper found reliable, valid and stable objective estimates of structural, ownership and prestige power in the board of 180 large UK industrial firms (1750 directors) from 28 sectors. The findings have strong implications for the operationalisation and measurement of board composition and structure in empirical work. The study (by incorporating CEO influence on director’s appointment process) offers wide ranging opportunities for examining if board composition and outside director independence matters. Hypotheses that test if the CEO influence of the nomination process affect board independence could be examined. The reliable and valid objective estimates of power in the board will facilitate the consideration of power dynamics (presently largely ignored) in empirical works investigating the performance effect of the board. Finally, the power dimension factors discovered serves as useful solution to the problem of multicollinearity in regression methods employing several governance mechanisms as explanatory variables.

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  • Henry Udueni, 1999. "Power Dimensions in the Board and Outside Director Independence: Evidence from large industrial UK firms," Corporate Governance: An International Review, Wiley Blackwell, vol. 7(1), pages 62-72, January.
    • Handle: RePEc:bla:corgov:v:7:y:1999:i:1:p:62-72
    DOI: 10.1111/1467-8683.00129
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    Cited by:

    1. Viktor Bozhinov & Jasmin Joecks & Katrin Scharfenkamp, 2021. "Gender spillovers from supervisory boards to management boards," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1317-1331, July.
    2. Ishaq Ahmed Mohammed & Ayoib Che-Ahmad & Mazrah Malek, 2018. "Shareholder’s involvement in the audit committee, audit quality and financial reporting lag in Nigeria," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(2), pages 355-374, April.
    3. María del Carmen Triana & Toyah L. Miller & Tiffany M. Trzebiatowski, 2014. "The Double-Edged Nature of Board Gender Diversity: Diversity, Firm Performance, and the Power of Women Directors as Predictors of Strategic Change," Organization Science, INFORMS, vol. 25(2), pages 609-632, April.
    4. Pietro Marchetti & Valeria Stefanelli, 2009. "Does the compensation level of outside director depend on its personal profile? Some evidence from UK," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 13(4), pages 325-354, November.
    5. Ahmad Yuosef Alodat & Zalailah Salleh & Hafiza Aishah Hashim & Farizah Sulong, 2021. "Corporate governance and firm performance: empirical evidence from Jordan," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 20(5), pages 866-896, August.
    6. Terry McNulty & Andrew Pettigrew & Greg Jobome & Clare Morris, 2011. "The role, power and influence of company chairs," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(1), pages 91-121, February.
    7. Ayad Ahmed Mohammed Al-Qublani & Hasnah Kamardin & Rohami Shafie, 2020. "Audit Committee Chair Attributes and Audit Report Lag in an Emerging Market," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 475-492, July.

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