Board diversity and strategic orientation: Evidence from India

• Published date: 01 February 2023
• Author: Muneza Kagzi,Jahnavi Patky
• Date: 01 February 2023
• DOI: http://doi.org/10.1002/pa.2841

RESEARCH ARTICLE

Board diversity and strategic orientation: Evidence from India

Muneza Kagzi

1

| Jahnavi Patky

2

1

T A Pai Management Institute, Manipal

Academy of Higher Education, Manipal,

Karnataka, India

2

Indian Institute of Management, Rohtak, India

Correspondence

Muneza Kagzi, SK-11, Souparnika Block, T A

Pai Management Institute, Badegabettu,

Manipal, Karnataka 576 104, India.

Email: muneza.kagzi@manipal.edu

This study leverages the upper echelons theory to investigate the effect of board

diversity (gender, age, education, and tenure) on the strategic orientation of a firm in

terms of its exploration- exploitation. It also investigates the moderating role of the

technological intensity of the industry for analyzing the relationship between board

diversity and exploration–exploitation of the firm. The technological intensity of the

industry is classified as high-tech and low-tech. This study brings to light the role of

the contingency factors in influencing the board's strategic choice. The study is based

on panel data set of Indian Top-200 companies listed on the National Stock Exchange

for the period between 2010 and 2015. The present study's findings indicate that an

increase in board diversity leads to more exploration than exploitation. Further, the

effect of board diversity is more pronounced in high-tech thanthe low-tech industries.

KEYWORDS

board diversity, corporate governance, technological intensity of the industries, exploration-

exploitation.

1|INTRODUCTION

The board of directors is the highest decision-making authority in the

organization. The impact of board diversity research has received con-

siderable research attention in fields such as finance (Jackling &

Johl, 2009), strategic management (Thams et al., 2018), human

resource management (Oehmichen, Heyden, et al., 2017), and Interna-

tional Business (Aggarwal et al., 2019). However, the outcomes of the

research remain inconclusive (Baker et al., 2020) reporting positive

(Hafsi & Turgut, 2013), negative (Adams & Ferreira, 2009), and no

impact (Rose et al., 2013). This calls for further research investigating

the impact of board diversity.

The debate on the impact of the role of board diversity has been

typically framed around its two important functions, monitoring

(Kagzi & Guha, 2018a) and strategizing (Oehmichen, et al., 2017). The

monitoring function is largely supported by the agency theory

(Fama & Jensen, 1983), which documents that the board carries out

the monitoring function to discipline self-interested managers. A

board comprising of an adequate number of independent directors

will facilitate effective monitoring and ensure enhanced performance.

Further, the board also helps share the organizational strategy

(Golden & Zajac, 2001). Strategic decision-making involves continuous

scanning of the business environment to identify and evaluate

business opportunities, which is a cognitive process. The upper eche-

lons theory (UET henceforth) (Hambrick & Mason, 1984) proposes

that the board's demographic attributes influence the director's cogni-

tive abilities required for selecting a strategy of the firm (Forbes &

Milliken, 1999). The theory argues that a board comprising of differ-

ent demographic attributes will bring distinct perspectives and greater

diversity in the information source. A major part of the research based

on board diversity has largely studied the board's monitoring role.

However, this only represents an incomplete picture (Post &

Byron, 2015). The current study addresses this gap in research by

examining the role of board diversity on the strategic function.

Organizations are challenged with allocating scarce resources and

maintaining an optimal balance between two essential strategies, namely,

exploitation and exploration (Benner & Tushman, 2003;March,1991;

Uotila et al., 2009). Exploration strategies focus on experimenting with

new alternatives (Benner & Tushman, 2015;March,1991). The returns of

such a strategy are uncertain, distant, and often negative (March, 1991;

Uotila et al., 2009). Firms need to unearth new knowledge leverage new

technology, identify new demand, and create new products to fulfill this

demand (Benner & Tushman, 2015). Exploration strategies do not quickly

produce revenues and typically lead to remote benefits (March, 1991).

On the other hand, exploitation strategies are needed to refine and

extend existing competencies, knowledge, technology, and paradigms

Received: 24 July 2021 Revised: 1 June 2022 Accepted: 5 August 2022

DOI: 10.1002/pa.2841

J Public Affairs. 2023;23:e2841. wileyonlinelibrary.com/journal/pa © 2022 John Wiley & Sons Ltd. 1of11

https://doi.org/10.1002/pa.2841