TOO UNSAFE TO MONITOR? HOW BOARD-CEO COGNITIVE CONFLICT AND CHAIR LEADERSHIP SHAPE OUTSIDE DIRECTOR MONITORING

Research into boards of directors has provided mixed support for the view that outside directors' independence or leadership by an independent chair improves monitoring. In this study, we use a micro-level approach to provide a better understanding of why outside directors have difficulty in monitoring the CEO. We highlight that an important reason for this lies in the boardroom dynamics associated with (a) outside directors' cognitive conflict with the CEO and (b) the chair's leadership of the board. Our inductive analyses of video observations of board meetings in five Australian corporations revealed the importance of chair participative leadership during disagreement episodes in the boardroom. Follow-up in-depth interviews of board meeting participants highlighted the importance of psychological safety as a key mechanism explaining why participative board chairs appear so effective in dealing with board-CEO cognitive conflict. We corroborate these results with a second, large-scale survey study involving data on 310 outside directors from 64 Dutch boards. Whereas prior work has mostly focused on the chair's relationship with the CEO, we instead highlight the importance of the chair's role as the leader of the board and identify board psychological safety as an important element shaping director monitoring within the confines of the boardroom.

Automated summary

This research looks at the dynamics within boards of directors, particularly focusing on how outside directors struggle to monitor CEOs. It finds that cognitive conflicts between outside directors and CEOs, along with the leadership style of the chair, play crucial roles in this process. Additionally, the concept of psychological safety emerged as a key mechanism in understanding how participative board chairs effectively manage conflicts.