Combined effort between top management team and board in strategic decision-making processes of private family firms: A conceptual framework of the supra-team approach

Abstract

The strategic role of boards has been a topic of much discussion. A passive stance is taken by managerial hegemony theorists who state that TMTs dominate the strategic decision-making processes while the board can only review and approve (Mace, 1971). Agency theorists follow this stance as they argue that it is necessary to divide the strategic tasks between the TMT and the board. Agency theory emphasizes that the separation of ownership and control can result in potential conflicts of interest (Jensen and Meckling, 1976). They propose the initiation and implementation (“decision management”) should be allocated to the TMT whereas the ratification and monitoring (“decision control”) should be one of the main tasks of the board of directors (Fama and Jensen, 1983). Recently, board research seems to develop from a ’directors should control managers’ perspective to a ‘directors and managers work together’ perspective (Rindova, 1999). As a result, recent board research is more focused on explaining the active involvement of boards in strategic decision-making, and their effect on firm outcomes such as firm strategy. The so-called strategic choice perspective (Judge and Zeithaml, 1992; Rindova, 1999) proposes a much broader strategic role of the board of directors including refining corporate strategy and even engaging in the development of strategic plans (Finkelstein et al., 2009; McNulty and Pettigrew, 1999; Ravasi and Zattoni, 2006; Simsek et al., 2015). From this point of view, TMTs and boards of directors should be both involved in the strategic process in an interactive and iterative way, rather than sequential (Rindova, 1999).