Corporate governance basically studies the way organizations are governed and the kinds of control mechanisms that are used to govern them. Typical topics would include boards of directors, top executives, and issues of corporate ownership.

In the past decade or so, the notions of corporate governance have changed considerably in the business world and in society at large. That change has attracted interest among researchers and lay persons. The big change has been an increased emphasis on shareholder orientation. That means an increased concern for addressing shareholder interests and strategies and the way firms organize themselves to meet that shareholder interest.

  Are there specific factors that led to this change?

They date all the way back to the late 1970s and have become increasingly pronounced as time has gone by. In the late 1960s organizations had become increasingly diversified, following what are called conglomerate forms of diversification. They were getting into more and more unrelated activities, trying to reduce corporate risk by making acquisitions in unrelated industries or industries that followed different cycles. The goal in the end was to reduce the risk of bankruptcy to the firm. There was a growing perception in the ‘70s that this particular strategy, which had been very widely adopted by the big companies, was a failure. This led to an economic theory called "agency theory," which suggested the reasons organizations had done this; they had diversified into unrelated industries because it suited the interests of top managers. The managers wanted to reduce their own employment risk and to assure their own income streams by diversifying into unrelated businesses, even though there was little justification for furthering shareholder interest. This highlighted the gulf between management preferences and shareholder interests. And this was what agency theory was all about. It grew as an ideology and became firmly entrenched by the 1980s, as a study of the ways that managers compensate themselves, give themselves golden parachutes etc, rather than working to promote shareholder interests. And this has been the emphasis of research into corporate governance.

  What are you saying in your papers that has led them to be so highly cited recently?

The second one—"Collaboration in the boardroom: behavioral and performance consequences of CEO-board social ties,"(Acad. Manage. J. 42[1]: 7-24, February 1999)—is part of a larger stream that says that the corporate governance changes that have been initiated to correct this agency problem have had, according to my evidence, serious unanticipated side effects. Basically, reforms have been created to make managers act in the shareholders’ interest and in some ways they have done precisely the opposite. I can give you a few examples: for instance, that one particular paper discusses the effects of a major governance-reform initiative to make boards of directors independent of top managers so that the boards can control managers. That paper, along with some of my other work, suggests that by making boards independent, you harm the working relationship that develops between top managers and directors. The result is that the top managers are less likely to draw on outside directors as sources of advice in the strategic decision-making process. In the end, it harms the process of key decision-making that the creation of the independent board was supposed to help.

  What about your hottest paper: "Customization or conformity? An institutional and network perspective on the content and consequences of TQM adoption"?

Well, this will take some background to explain: the paper develops an institutional and network perspective on something called Total Quality Management, or TQM programs. TQM is a whole system of management and operations that is designed to improve the quality of an organization's products or services. And the term "total quality" means that unlike past reforms focused on particular aspects of organizations, such as production or becoming more customer-oriented, this tries to change the whole organization. It attempts to get different aspects of the organization working together and doing so more efficiently. It tries to make improvements to production efficiency and improve customer satisfaction by channeling customer complaints to production so that production can then make improvements that will satisfy customers. It also tries to improve communication between production and sales people so that the sales people won't make unrealistic promises. In effect, it tries to get the entire organization to focus on quality. The key contribution of my paper was to say basically that TQM has become very widely adopted, but that it's been adopted not because firms expect to see real efficiency improvements but because it's a fad.

  Did you use a specific example to back up that contention?

Our sample was hospitals. Hospitals adopt TQM because they get favorable ratings by regulators. And we found that over time, organizations are more and more likely to adopt a typical form of TQM, whether or not it is well-adapted to their particular organization. So the title, "Customization or conformity?" refers to the fact that the first adopters of TQM in hospitals appeared to customize TQM to the particular needs of their organization. Then it became a fad and later adopters tended to use the typical form of TQM, even though it might not be particularly suited to the needs of the organization. We found this is especially true for organizations when they had alliance ties to other organizations that had already adopted TQM.

  Why do you think the paper has had such an impact?

The reason it's cited a lot is it provides an example of what's called "institutionalization," or the development of a fad in the context of administrative innovation, and it also shows how organizational network ties—alliance ties, in other words—can accelerate the development of a fad. This kind of fits together with the first paper we discussed in the sense that the basic idea of both is that organizations adopt reforms, such as making their boards more independent or using TQM, not because they actually work but because they have become fads, and the organizations have to demonstrate to constituents that they are keeping up.

  Where do you go from here with this research?

What I'm thinking of doing next is developing a larger theory of strategy. My focus to this point has been specifically on corporate governance, but I think these kinds of processes can be generalized to suggest a theory of strategy in general. The theory would be a symbolic management theory, which means that in some circles, firms adopt strategies as a symbolic gesture to their constituents. I think this can explain a wide variety of strategic initiatives, including, for instance, strategic alliances and strategic decisions, such as when firms chose to divest themselves of divisions and when and how they downsize organizations and lay off employees. I'm trying to generalize my theory to explain that kind of strategy in general.

  Have there been any particularly serendipitous aspects to your research?

I don't know if I'd call it serendipity, but I guess what came as a surprise to me was that some of these governance reforms I was studying actually had a negative effect on performance. The proposition of my dissertation was that governance reforms would have unanticipated side effects, but I didn’t expect them to have negative effects. I can give you another example: in one of my papers I proposed originally that as boards become more independent of top managers, that would prompt political behavior by the top managers. In the old corporate governance scheme, outside directors tended to be personal friends of the top managers, connected in a pretty close-knit social network. As pressure has grown to make boards become more independent, they started importing directors who came from outside their social networks. My idea was that CEOs would compensate for that independence by acting politically and that these political tactics would offset somewhat the benefit of having the independent board. What I found instead was that this political behavior completely overwhelmed any benefits of independence. So the political cost actually exceeded the benefit. I used a methodological technique to measure the benefits and cost separately and not only did I find that the costs overwhelmed the benefit, so that the net effect was negative, but the magnitude of that effect surprised me.

  What are the greatest challenges to studying corporate governance?

One major obstacle is getting access to the necessary data. One of the key ideas in my theory is that constituent expectations for governance may be reflected in the formal features of governance, but not necessarily in the actual informal governance process. And it's hard to get data on those informal governance processes. For example, my theory suggests that boards, as they become more formally independent, have not necessarily become better governed in terms of their actual processes. While you can measure formal board independence pretty easily, it's hard to measure the governance processes. You have to get questionnaire or survey data from top managers, or get the opportunity to sit in on board meetings and somehow get first-hand access to what's going on, and that's very difficult to do.

  Have you managed to get around it?

Somewhat. In my surveys I have managed to get good response rates from top managers and directors. The reason for that is a bit complicated. I think it's mostly my own persistence and being able to afford to send out multiple waves of a survey. I usually send out three waves and I try many different channels to get executives to respond. I've generally been able to get between 40% and 50% response rates, which is relatively good for a top-management survey.

The other challenge in this kind of research, and it’s kind of unique about this area, is that we try to develop theories that explain particular phenomena. Those phenomena can be as narrow as executive compensation or as broad as strategy, but it still focuses on particular phenomena. To explain it we need to develop interdisciplinary theories. We try to draw from a variety of disciplines—economics, sociology, social psychology and even, to a lesser extent, anthropology—and that is very challenging because it requires that you have the confidence to work in all those different disciplines, and that's not easy to come by.