Does the Composition and Practice of Boards of Directors Bear Any Relationship to the Performance of their Companies?

Victor Dulewicz and Peter Herbert

Corporate Governance: An International Review, 2004, vol. 12, issue 3, 263-280

Abstract: Board composition data and evaluations about how listed‐company boards actually performed in 1997 were related to the performance of their companies over the ensuing three years. Statistical analyses were conducted on the relationships between Board Composition, Practice and Potential in 1997 and subsequent Company Performance, based on measures of Cash Flow Return on Total Assets (CFROTA) and Sales Turnover. Hypotheses were formulated in relation to three theories of the board and to various principles of the Combined Code and recommendations of the Higgs Review. Most were not supported and the results generally provide scant support for the main theories of the board. Board practice on the tasks was generally not linked to company performance, whereas board potential was significantly related on six of the 16 tasks of the board. Possible explanations for these findings are discussed.

Date: 2004
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