National culture diversity in new venture boards: The role of founders' relational demography

• Published date: 01 September 2019
• DOI: http://doi.org/10.1002/sej.1327
• Author: Timur Uman,Karl Wennberg,Chanchal Balachandran
• Date: 01 September 2019

SPECIAL ISSUE ARTICLE

National culture diversity in new venture boards:

The role of founders' relational demography

Chanchal Balachandran

1

| Karl Wennberg

2

| Timur Uman

3,4

1

Utrecht University School of Economics,

Faculty of Law, Economics and Governance,

Utrecht University, Utrecht, The Netherlands

2

Institute for Analytical Sociology (IAS),

Department of Management and Engineering,

Linköping University, Norrköping, Sweden

3

Jönköping International Business School,

Jönköping University, Jönköping, Sweden

4

Department of Business Administration,

Kristianstad University, Kristianstad, Sweden

Correspondence

Chanchal Balachandran, Utrecht University

School of Economics, Faculty of Law,

Economics and Governance, Utrecht

University, 3584 EC Utrecht, The

Netherlands.

Email: c.balachandran@uu.nl

Funding information

Jan Wallanders och Tom Hedelius Stiftelse

samt Tore Browaldhs Stiftelse, Grant/Award

Number: P2016-0246:1; Riksbankens

Jubileumsfond, Grant/Award Numbers:

M12-0301:1, M12-0301; Linköping

University

Abstract

Research Summary:This study explains the conditions under

which new venture boards are less or more culturally

diverse in terms of theirdirectors' country of birth. Longitudi-

nal data on 5,515 Swedish ventures suggest that most direc-

tors are recruited from founders' proximate social settings—

neighborhoods in which they reside and past workplaces—

and that diversity levels in these social settings strongly pre-

dict the national culture diversity in venture boards. Given

the rapid internationalization of workplaces and regions

around the world,this paper provides importantclues regard-

ing how culturally diverse upper echelons are being incorpo-

rated into the organizational design ofnew ventures.

Managerial Summary:Most New Venture Boards exhibit

limited diversity in terms of their directors' country of birth,

as they are drawn from the venture founders' network. Yet,

some new venture boards are indeed born diverse. Our

study reveals that founders with prior exposure to culturally

diverse workplaces and residential neighborhoods are much

more likely to design a culturally diverse board at founding.

Given the rapid internationalization of workplaces and

regions in most countries around the world, our paper pro-

vides important clues regarding how national culture diver-

sity in top management emerges and is being incorporated

into the organizational design of new ventures.

KEYWORDS

board of directors, national culture diversity, new ventures

Received: 30 June 2017 Revised: 25 May 2019 Accepted: 15 June 2019 Published on: 1 August 2019

DOI: 10.1002/sej.1327

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which

permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no

modifications or adaptations are made.

© 2019 The Authors. Strategic Entrepreneurship Journal published by Strategic Management Society.

410 Strategic Entrepreneurship Journal. 2019;13:410–434.wileyonlinelibrary.com/journal/sej

1|INTRODUCTION

The composition of a new venture's board is vital during its development and contributes to the organizational

design of new ventures (Garg & Eisenhardt, 2017). Board composition represents an initial design element of new

ventures by constraining or enabling the breadth of alternatives that foundersconsider in critical decisions regard-

ing strategy formation, mentoring, management monitoring, and strategy execution (Beckman, Schoonhoven,

Rottner, & Kim, 2014; Garg, 2013, 2014; Garg & Eisenhardt, 2017; Wasserman, 2012; Wasserman &

Boeker, 2010).

This paper focuses on national culture diversity in new venture boards, a fundamental influence on the variety of

cognitive schemas, knowledge, and unique experiences in the board (Hambrick, Davison, Snell, & Snow, 1998).

Workgroup differences in national cultures can enhance the variety of problem-solving approaches and innovative

solutions but can also be a source of intragroup conflict (Choudhury & Kim, 2019; Jang, 2017; Pelled, 1996). In new

ventures, geographically diverse boards of directors bring diverse knowledge regarding the organizational design or

strategy of, for example, alliances and portfolios (Beckman et al., 2014). Similarly, board diversity in terms of national

culture may shape new ventures' organizational design by affecting initial governance and incentive structures, the

formalization of organizational structure, and human resource practices (e.g. Colombo, Delmastro, & Rabbiosi, 2012;

Colombo, Rossi-Lamastra, & Matassini, 2016; Miles, Snow, Meyer, & Coleman, 1978). By national culture diversity,

we mean diversity in the country group of birth among board members, following central traditions in political science,

sociology, and international business that depict national culture as a foundation for individuals' cultural distinctions

and behavior (Hambrick et al., 1998; Hofstede, 1980; Inglehart, 1997).

1

Although board diversity plays a role in the organizational design of new ventures during their inception and

early development, board composition tends to reflect the founders' network ties.

2

Most founders may not consider

the potential benefits of board national culture diversity, and may instead rely on their contacts to mobilize new

board members during the founding process of a new venture (Aldrich & Kim, 2007; Ruef, 2010). According to the

theory of relational demography, most founders recruit board members under “ecological constraints,”defined by

the socially and spatially proximate networks in which they are embedded (Ruef, Aldrich, & Carter, 2003, p. 203).

Accordingly, we propose that founders tend to recruit people they are directly or indirectly affiliated with from past

workplaces or their residential neighborhood, leading to initial boards that largely reflect the founders' relational

demography.

We use data on all new incorporated ventures in Sweden between 2004 and 2008 matched with data on the

demography and employment histories of founders and board members. Analyses of venture-level diversity show

that the majority of new venture boards are populated by people from the founders' neighborhoods and workplaces,

and that the national culture diversity of these social settings is a strong predictor of the national culture diversity of

the new venture boards, given a large set of salient controls. Furthermore, analyses of potential and actual founder–

director dyads based on founders' prior workplace networks suggest that this effect is driven partly by shared tenure

and partly by the frequency of individual distinct national cultures in the founders' social (previous workplace)

setting.

Our study contributes to research on the organizational design of new ventures by showing that the national cul-

ture makeup of a board—an important parameter in new ventures' organizational design (c.f. Frijns, Dodd, &

Cimerova, 2016; Masulis, Wang, & Xie, 2012)—is, to a great extent, a manifestation of the founders' relational

demography (Tsui, Egan, & O'Reilly, 1992). We also contribute to research on corporate governance in new ventures,

which to date has mainly stressed how founders' supplementation of their ventures with knowledge and resources is

a primary motivation for boardroom appointments (Garg & Furr, 2017; George, Robley Wood, & Khan, 2001). By

highlighting the ecological constraints on new ventures' recruitment of board members, we show that the organiza-

tional design manifested in a venture board's national culture diversity is largely shaped by the founders' socially and

BALACHANDRAN ET AL.411