The Role of Boards of Directors and the Relationship with Organisational Performance: An Empirical Investigation into Small and Medium Sized Enterprises in Iceland

Abstract

This thesis is an empirical investigation which focuses on the role of the board in small and medium sized enterprises in Iceland and the relationship between boards and organisational performance. The research will support the claim that there are three main roles that boards focus on: Strategic role, Monitoring role and Resource and Advice role. Furthermore the research will indicate there is a positive relationship between boards of directors and organisational performance within the context of the study. The board of directors has somewhat been the black box of organisations as there has been lack of research exploring the process of the board. Although corporate governance as a research field has grown, the focus has mostly been on the structure of the board rather than the process. Only a handful of studies have collected primary data and there has been a need for studies exploring the process rather than the structure of boards. Furthermore there has been growing interest in studies from another legal context than the Anglo-Saxon dimension. This study responds to these calls as the study collects primary data with focus on the process of the board in SMEs in Iceland. The response rate was 21% from a target group of 560 companies. It is argued in this thesis that the main problem of corporate governance is to establish there is a positive relationship between the board of directors and organisational performance. The relationship would reject the claim that boards do not have any value as an organ within the organisation, other than being a legal formality. This is the claim of management hegemony theory, which describes the board as a rubber stamp for managerial decisions. Agency theory claims on the contrary that the board can have value as an instrument for monitoring management and stewardship theory claims the board’s role in strategy is what makes the board valuable. Other theories have different claims. This study rejects the management hegemony perspective and supports stewardship theory. Further research is needed to support the results of this thesis in different context.