Boards' relevant experience and international strategy: A recipe for success or a case of too many cooks?

• Author: Whitney Douglas Fernandez,Chamu Sundaramurthy
• Published date: 01 November 2020
• DOI: http://doi.org/10.1002/gsj.1392
• Date: 01 November 2020

RESEARCH ARTICLE

Boards' relevant experience and international

strategy: A recipe for success or a case of too

many cooks?

Whitney Douglas Fernandez | Chamu Sundaramurthy

Department of Management, Fowler

College of Business, San Diego State

University, San Diego, California

Correspondence

Whitney Douglas Fernandez, Department

of Management, Fowler College of

Business, San Diego State University,

5500 Campanile Drive, San Diego, CA

92182.

Email: wdoug002@fiu.edu

Funding information

Fowler College of Business Graduate Fee

Grant

Abstract

Research Summary: Board scholarship has generally

taken the perspective that when it comes to board

expertise, more is better. This study, in contrast,

explores contingencies that may stretch board experi-

ence beyond the limits of its usefulness. We integrate

insights from extant research in board leadership and

international strategy to identify and test internal and

external contextual factors that can limit the effective-

ness of boards' international experience. Exploring this

in the context of cross-border M&As, we find evidence

that the positive effects of boards' international experi-

ence are attenuated when the CEO lacks such knowl-

edge, and when the institutional distance between the

home and target countries is high. Overall, our findings

suggest the need to exercise caution in viewing board

expertise as a “panacea”of board effectiveness.

Managerial Summary: Boards are generally viewed

as experts that CEOs can look to for advice when for-

mulating corporate strategy. Accordingly, the predomi-

nant view has been that the more relevant expertise on

the board, the better the strategic advice they can offer.

The results of our study, however, suggest that is not

always the case. As it pertains to cross-border M&As,

in order to get the maximum benefit from boards' inter-

national experience, CEOs must have enough interna-

tional experience of their own, and the institutional

environment of the target firm's country must not be

Received: 29 July 2018 Revised: 2 September 2020 Accepted: 4 September 2020

DOI: 10.1002/gsj.1392

726 © 2020 Strategic Management Society Global Strategy Journal. 2020;10:726–749.wileyonlinelibrary.com/journal/gsj

too dissimilar from the acquiring firm's home country.

Otherwise, it is possible that the boards' international

experience will be stretched beyond its strategic

usefulness.

KEYWORDS

boards of directors, CEOs, cross-border mergers and acquisitions,

human capital, institutional distance

1|INTRODUCTION

Corporate boards are increasingly being called upon to provide strategic support and contribute

to the long-term value of firms. Indeed, corporate directors indicate in a recent survey that the

time they spend on board duties has increased dramatically in recent years and that firm strat-

egy is the primary focus of this increased attention (McKinsey & Company, 2016). Further,

these directors identify strategy as the area in which boards can contribute the most value to

firms. Mirroring this increased attention to strategy, review of board scholarship has empha-

sized the importance of leveraging the human and social capital of the board in the process of

formulating and implementing strategy (Johnson, Schnatterly, & Hill, 2013). Among studies

taking this perspective of the board, the dominant view has been that higher levels of human

capital stemming from directors' knowledge and experience should increase their ability to

serve as strategic advisors and thus have a positive effect on firm performance. In other words,

extant research assumes that when it comes to board expertise, more is generally better.

While directors' expertise is certainly an important factor in helping boards to effectively ful-

fill their strategic role, what remains largely missing from this discussion has been a full consid-

eration of the limits that may exist to the value of directors' experience due to the “positive and

negative aspects”of human capital (Johnson et al., 2013, p. 243). What are the negative aspects

of human capital and under what conditions do they outweigh the positives such that higher

levels of experience on the board are less valuable or even detrimental to the firm? Also missing

from this body of literature has been a consideration of the impact of specific board experiences

that are relevant in the context of international expansion, which has been of increasing strate-

gic importance to firms and their boards in today's complex global business landscape. This

paper seeks to address these important issues by examining how the firm's cross-border M&A

performance is impacted by the board's regional international experience. We study the limits

to the value of this regional experience by exploring contingencies that can curtail or even

reverse the positive effects of relevant board experience.

Both internal and external factors affect the success of cross-border M&As Shimizu, Hitt,

Vaidyanath, & Pisano, 2004). Accordingly, based on prior research we identify internal and

external contextual factors that can limit the effectiveness of boards' international experience.

With regard to internal context, we explore how the CEO's level of international experience can

strengthen or weaken the positive effects of board capital on cross-border M&A performance.

We focus on this factor because the CEO is a likely repository of firms' experiential learning

accrued from prior acquisitions (Kroll, Walters, & Wright, 2008) and because the CEO plays a

vital role in shaping the manner and extent to which board capital is leveraged (e.g., Boyd,

Haynes, & Zona, 2011; Sundaramurthy, Pukthuanthong, & Kor, 2014). We argue that when

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