External COO/presidents as expert directors: A new look at the service role of boards

Abstract

Much of the scholarship on boards of directors has examined either the control (i.e., monitoring) role or the resource dependence role that boards fill. Relatively little has examined the service role, wherein directors provide advice and guidance to management. This study builds on recent work exploring director expertise by asking how operational expertise on boards impacts firm performance. We find that having external COO/presidents on a board of directors positively impacts firm performance when the firm's operational efficiency is declining, but negatively impacts performance when the firm's operational efficiency is improving. We also find that other types of external executives serving as directors exhibit the opposite relationship, suggesting that the value of director expertise is context-dependent. We discuss the implications of these findings for director selection. Copyright © 2013 John Wiley & Sons, Ltd. Copyright © 2013 John Wiley & Sons, Ltd.