14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License Received: 10 March 2020 Revised: 23 August 2021 Accepted: 4 October 2021 DOI: 10.1111/corg.12408 ORIGINAL ARTICLE The cost of conformity to good governance: Board design and compensation Yuliya Ponomareva1 | Ryan Federo2 | Ruth V. Aguilera3,4 | Sven-Olof Collin5,6 1 Department of Business Administration, Universitat Autonoma de Barcelona, Abstract Barcelona, Spain Research question/issue: Albeit the fact that the “one-size-fits-all” corporate gover- 2 Department of Business Administration, nance model has been mostly discarded, the debate on what constitutes a well- Universitat de les Illes Balears, Palma de Mallorca, Spain governed firm has converged toward a set of practices that comprise what we refer 3 D'Amore-McKim School of Business, to as the global good governance norm. Whereas extant research has focused mainly Northeastern University, Boston, Massachusetts, USA on the benefits of good governance, we build on neo-institutional theory to explore 4 Department of Strategy and General how firm conformity or nonconformity to this global norm is associated with the cost Management, ESADE Business School, of board governance, captured as board compensation. Universitat Ramon Llull, Barcelona, Spain 5 Free University of Scania, Scania, Sweden Research findings/insights: Using a fuzzy set qualitative comparative analysis 6 The Economics and Law Chair, Kharkiv (fsQCA) of firms listed in the Stockholm Stock Exchange, we find that the configura- University of Humanities People's Ukraininan tions of board practices conforming to the global good governance norm are associ- Academy, Kharkiv, Ukraine ated with higher board compensation than those that score low on conformity. Correspondence Based on our findings, we deduce four archetypical board design strategies jointly Yuliya Ponomareva, Department of Business Administration, Universitat Autonoma de shaped by two central forces: the pressure toward conformity to the good gover- Barcelona, Campus de la UAB, Plaça Cívica, nance norm and the extent of governance discretion, denoting firm agentic behavior. 08193 Bellaterra, Barcelona. Email: yulia.ponomareva@uab.cat Theoretical/academic implications: First, our study highlights that conformity to the global good governance norm is accompanied with higher costs than nonconformity. Funding information Spanish Ministry of Science and Innovation, Second, while most of the extant research discusses conformity and agentic behavior Grant/Award Numbers: MCIN/AEI/ as two opposing forces, we uncover that they simultaneously co-exist in board gov- PID2020-115982RB, PID2020-115018RB- C32 ernance, stressing their interconnectedness. Practitioner/policy implications: Conformity to the global good governance norm influences the strategic choices of board designs and the costs associated with such choices. KEYWORDS corporate governance, board of directors, director compensation, qualitative comparative analysis, neo-institutional theory 1 | I N T RO DU CT I O N is a utopia (Aguilera et al., 2019). At the same time, the debate about what constitutes a well-governed firm appears to have converged Ample research shows the heterogeneity of corporate governance toward a set of global best-practice recommendations for board struc- models around the world, suggesting that the “one-size-fits-all” tenet tures and behaviors, labeled good governance, that are considered as This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes. © 2021 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd. Corp Govern Int Rev. 2022;30:399–420. wileyonlinelibrary.com/journal/corg 399 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 400 PONOMAREVA ET AL. both efficient and legitimate (Aguilera & Cuervo-Cazurra, 2004; value through both monitoring and resource provision (Hillman & Cuervo, 2002; Van Essen et al., 2013). As a result, firms all over the Dalziel, 2003), accounting for the interplay between the practices world face intensifying isomorphic pressure to reconfigure their associated with each of the two board functions is imperative. To this boards to conform with a set of governance practices that constitute end, recent work adopting a configurational perspective has drawn a globally accepted good governance norm (Bell et al., 2014; Xie attention to the interconnected nature of governance practices, et al., 2021; Zattoni & Cuomo, 2008). suggesting that monitoring and resource provision can be complemen- Despite a large number of studies examining the performance tary (Bell et al., 2014; Schiehll et al., 2017) and/or substitute each benefits of good governance practices, the literature is vague about other (Misangyi & Acharya, 2014). For example, Federo and the costs associated with conformity to the increasingly influential Saz-Carranza (2018) find that boards may provide resources through global good governance norm, such as increasing independence and different combinations of board governance practices, while Rediker diversity of the board of directors. These costs, broadly defined as the and Seth (1995) highlight the substitution effects between the moni- “value of inputs to corporate governance,” comprise an essential ele- toring undertaken by the board and that of large shareholders. ment of the governance system (Aguilera et al., 2008: 476), reflecting We build on this configurational perspective (Fiss, 2007; Furnari the firms' strategic choices (Oliver, 1991). Thus, understanding the et al., 2021) to examine how good governance practices complement costs associated with conformity to the global good governance norm, and/or substitute each other to form complex and unique board con- be this conformity substantive or symbolic (Westphal & Park, 2020), figurations (or bundles) associated with high and low levels of gover- becomes paramount for explaining the firms' board design choices as nance costs. We draw on neo-institutional theory (DiMaggio & well as the effects of these choices on organizational outcomes. Previ- Powell, 1983; Meyer & Rowan, 1977; Scott, 1995; Tolbert & ous studies examining the costs of conformity to the good governance Zucker, 1983) to analyze how publicly listed Swedish firms conform to norm in various national settings have drawn attention to the poten- the global good governance norm. While our theoretical proposition is tial decoupling between formal adoption and implementation of gov- not exclusive to the Swedish context, Sweden provides a fertile gro- ernance practices (Cuervo, 2002; Zajac & Westphal, 2004) and the und to analyze the costs of conformity to good governance due to the costs of over-governance (Aguilera et al., 2008; Bell et al., 2014). An openness of its economy and its high level of integration in the global important issue that is yet to receive attention concerns: How does market. Although the Swedish context differs from that of the conformity to the globally accepted good governance norm influence firm United States due to the presence of few highly empowered owners, governance costs? the Swedish corporate governance system has some traits of the One way to capture the governance costs of adopting board prac- Anglo-American governance model such as the board's core role. In tices consistent with the global good governance norm is the cost of addition, the Swedish context displays small-world characteristics that the board of directors, that is, board compensation. The lack of denote a strong sense of community and contribute to the rapid diffu- research on board compensation as a conformity/nonconformity cost sion of governance norms (Sinani et al., 2008), which generates of good governance is surprising given the economic and symbolic within-country variations in board designs. importance of boardroom remuneration practices as well as their dis- Our findings indicate that conforming to the global good gover- cretionary nature. Board compensation refers to a direct systemic cost nance norm has high costs in terms of board compensation. In particu- of remunerating the firm's board directors (Aguilera et al., 2008) lar, we uncover four bundles conforming to the good governance which, in recent years, has been increasing across the globe norm and associated with high levels of board compensation and four (e.g., Boivie et al., 2015; Dah & Frye, 2017; Haron & bundles nonconforming to the good governance norm and associated Akhtaruddin, 2013; Li & Roberts, 2017). Given the team nature of the with low levels of board compensation. Based on our analysis, we board's work, the largest portion of board compensation includes the deduce four archetypical board design strategies jointly shaped by fixed fees paid regardless of members' individual contributions, mak- two central forces: the pressure to conform to the global institutional ing it especially difficult to determine and measure the directors' input norm and the firm governance discretion, denoting “the latitude of to firm performance. In the presence of uncertainty stemming from accessible governance practices” (Aguilera et al., 2018: 87) which cap- the weak link between directors' inputs and firm performance, existing tures firm's agentic behavior. institutional norms are expected to play an important role in deter- We contribute to board governance research in three ways. First, mining board compensation (Boivie et al., 2015; Budsaratragoon rather than focusing on the performance benefits of good et al., 2020), making it a useful tool to examine the cost of confor- governance—a topic that has spurred a considerable amount of mity/nonconformity to global good governance norm. research—we examine the costs associated with conformity to the Most research exploring the relationship between board compen- globally accepted good governance practices. Our results indicate that sation and good governance practices identifies the directors' moni- conformity with the global good governance norm by adopting a set toring capacity (Burns et al., 2021) and social and human capital of specific governance practices is associated with high direct firm (Collin et al., 2017; Fedaseyeu et al., 2018) to play an important role in costs through board compensation, which could be problematic given setting directors' fees. However, these studies largely examine board the considerable empirical ambiguity regarding the performance bene- practices in isolation without considering their key interdependencies. fits of such practices (Boivie et al., 2016; Dalton & Dalton, 2011; Given that the good governance norm mandates boards to create Johnson et al., 2013). 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License PONOMAREVA ET AL. 401 Second, we provide support to the theory of firm heterogeneity increasingly independent (Spencer Stuart, 2018) and highly diverse in explaining why firms within a national governance environment vary human and social capital (Hunt et al., 2018), which is also observed in in their corporate governance practices (Witt et al., 2021). In particu- the director labor market trends (James Drury Partners, 2018). lar, we theorize and provide empirical evidence indicating that confor- In this study, we draw on neo-institutional theory mity and nonconformity with the good governance norm result in (e.g., DiMaggio & Powell, 1983; Meyer & Rowan, 1977; Scott, 1995) multiple board design strategies. This research exercise converses to argue that the globally accepted set of good governance practices with the classic debate on neo-institutional theory about the inherent (OECD, 2019), which several subsequent studies labeled good gover- tension between conforming to institutional pressure and agentic nance (Aguilera & Cuervo-Cazurra, 2004; Cuervo, 2002; Van Essen choices (Aguilera et al., 2018). Rather than characterizing these two et al., 2013; Zattoni & Cuomo, 2008), is a product of a rationalized central forces shaping board design—the pressure toward conformity norm. Several forces, in addition to heightened globalization and digi- to the good governance norm and the extent of governance talization, have contributed to the institutionalization of the global discretion—as opposite sides of the spectrum (Oliver, 1991), we good governance norm. First, the introduction of good corporate gov- uncover their interconnectedness and joint influence on board design ernance codes and other regulatory changes such as separation strategies. between board chair and CEO positions and gender quotas aimed at Third, we contribute to the growing research on boardroom increasing board independence (Collier & Zaman, 2005; Zattoni & compensation—which has been criticized for the lack of theoretical Cuomo, 2008) and enriching board capital respectively (Credit development (Budsaratragoon et al., 2020). Although previous work Suisse, 2012; Milne, 2009) have generated strong coercive pressure for on this topic has mainly relied on the economic explanations of board- listed firms worldwide. Second, normative pressure, which refers to the room pay, we advance research by bringing attention to the global process of professionalization, has led to the rapid expansion of the institutional norm as an important institutional reference used by market for independent and demographically diverse directors firms when setting board compensation and design strategies (Boivie (Chen & Moers, 2018; James Drury Partners, 2018). Finally, previous et al., 2015; Budsaratragoon et al., 2020) and as a conformity instru- studies show evidence of some firms yielding to mimetic pressures as ment to reach both efficiency and legitimation simultaneously executives and directors to copy practices—for example, creating a (Tolbert & Zucker, 1983). governance committee before being mandated by legislators (Jones Our study is organized as follows. We first review the literature et al., 2015) and hiring independent directors (Bertoni et al., 2014)— on the institutionalization of the global good governance norm and that they experience in other boards on which they serve (Zajac & discuss why board compensation captures the cost of conformity/ Westphal, 1996). Because of the presence of multiple forces to con- nonconformity to the global good governance norm. Next, we apply form to the globally legitimate good governance norm, firms face con- a configurational approach to formulate an overarching proposition siderable legitimacy pressure (Galaskiewicz & Wasserman, 1989) to that links conformity with the good governance norm and board adopt a set of globally recommended board practices presuming good compensation. We then present our methodology to test our propo- governance (Zattoni & Cuomo, 2008). sition and discuss our findings from which we deduce four archetypi- Neo-institutional theory suggests that coercive, normative, and cal board design strategies. We conclude by discussing the mimetic pressures can compel firms to conform to the good gover- implications of our study, its limitations, and suggested avenues for nance norm because of two main reasons: efficiency and legitimacy, future research. which are not necessarily incompatible but may coexist and comple- ment each other (Ntim & Soobaroyen, 2013; Tolbert & Zucker, 1983; Zattoni & Cuomo, 2008). By conforming to the institutional pressure, 2 | T H E O R E T I C A L BA C K G R O U N D firms can enhance their ability to compete for critical resources and survival capabilities that generate substantive benefits for firm perfor- 2.1 | Good governance as a globally accepted mance (Meyer & Rowan, 1977). Scholars suggest that firms con- institutional norm forming to the good governance norm can gain efficiency by reducing agency costs via enhanced monitoring and facilitating access to valu- Corporate governance researchers, practitioners, and policymakers able resources through resource provision (Aguilera & Cuervo- have long been concerned with what constitutes an effective board Cazurra, 2004). It can also attract capital, avoid penalties for (Boivie et al., 2016; Hambrick, Misangyi, & Park, 2015; Hillman & noncompliance or prevent future regulation (Aguilera et al., 2008). Dalziel, 2003; Misangyi & Acharya, 2014). The notion of good gover- Furthermore, firms adopting practices that are accepted, understood, nance has evolved around two main board functions: (1) monitoring, and globally recognized may not only enhance efficiency but also which refers to the directors' mandate to assess managerial perfor- obtain social legitimacy vis-à-vis the stakeholders' expectations mance and provide incentives to managers, and (2) resource provision (DiMaggio & Powell, 1983; Scott, 1995; Zucker, 1987). The legitimacy or advising, denoting the directors' ability to manage environmental benefits generated through conformity to good governance practices dependence by granting access to valuable resources and enhancing enhance firms with social acceptance, ensuring their “license to oper- the legitimacy of their firms (Hillman & Dalziel, 2003). The consensus ate” and reducing turbulence and ultimately promoting organizational and emphasis on these two board functions result in boards becoming survival and success (Zajac & Westphal, 2004). 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 402 PONOMAREVA ET AL. Yet, despite the increasing pressure for firms to conform to the (Burns et al., 2021). Even in the US context where stock options are global good governance norm, research has demonstrated consider- widely used, the variation of board compensation across firms is not able heterogeneity among firm board governance practices, indicat- very significant (Boivie et al., 2015), and stock compensation is used ing that, while firms tend to conform to the dominant governance mainly to “to establish an ongoing interest in the long-term prospects logic, this may not be their principal concern (Aguilera et al., 2018). of the business” (Tonello, 2020: 3). Second, being involved in Instead, firms may choose a nonconformity strategy to attain the strategy-making rather than its implementation makes the pay-for- goals of powerful stakeholders such as family owners (Federo performance rationale of agency theorists less applicable to the board. et al., 2020; Ponomareva & Ahlberg, 2016), thereby highlighting the Compensation is typically structured around the complexity of the presence of organizational agency alongside the institutional pres- firm, the time devoted, and leadership roles (Andreas et al., 2012). sure to conform. Agentic behavior in the context of board gover- Thus, it becomes challenging to determine board compensation in an nance is termed governance discretion (Aguilera et al., 2018), which objective way, provoking uncertainty in terms of how boards should assumes a presence of active choice as opposed to passive be paid (Dalton et al., 1998). conformity (Oliver, 1991). There is growing evidence suggesting that an institutional norm The choice whether to conform to good governance norm likely can be a key tool defining board compensation when faced with the depends on the trade-offs between the expected efficiency and legiti- uncertainty of objectively evaluating directors' performance (Boivie macy benefits and the costs associated with the conformity. Although et al., 2015; Budsaratragoon et al., 2020). Namely, benchmarking a large amount of previous research on the good governance norm board compensation against the good governance norm can simplify focuses on the benefits of conformity to this globally legitimate norm the decision-making process as it is generally associated with with little consensus about performance benefits of such practices enhanced efficiency and legitimacy (Fernandez-Alles et al., 2006). (Boivie et al., 2016; Dalton & Dalton, 2011; Johnson et al., 2013), an Since it is difficult to predict the individual directors' contribution to important question that has not received much attention to date is the board ex ante, firms will grant high rewards in terms of compensa- the cost of conformity. Understanding these costs is especially rele- tion to boards with directors that conform with the good governance vant and timely, given, on the one hand, the increasing institutional norm (Aguilera et al., 2016; Boivie et al., 2015). pressure on firms to adopt these practices (Zattoni & Cuomo, 2008) In sum, we expect that conformity to the globally legitimate good and, on the other hand, the observed heterogeneity in board gover- governance norm will be associated with high board compensation. nance practices (Aguilera et al., 2018; Witt et al., 2021). We propose We use the term conformity to denote a strategic choice regarding that theorizing and empirically examining the relationship between board design that follows a set of recommended practices. In the con- conformity to the good governance norm and the costs associated text of our study, the term conformity is not synonymous with compli- with such conformity provide a missing link in understanding why ance. Compliance with good governance norms assumes the adoption firms exhibit governance discretion given the intensifying isomorphic of all the characteristics noted by best-practice recommendations, but pressure. In the next section, we discuss how the level of board com- it does not account for agentic behavior. By contrast, conformity may pensation can be construed as a cost of conformity or nonconformity entail strategic deviations from selected recommended practices, to good governance. manifested through specific combinations of board design attributes. In other words, while compliance refers to a “ticking-the-box” approach, conformity may also include decisions driven by gover- 2.2 | Board compensation as cost of conformity to nance discretion. good governance Board compensation refers to a direct systemic cost related to the 2.3 | A configurational approach to global good directors' remuneration (e.g., Aguilera et al., 2008). These costs are governance not uniform across firms but vary depending on the firm's strategic choices and environmental contingencies (Collin et al., 2017). Because Extant research contends that board practices are interdependent ele- of its substantive and symbolic value for the firm, as well as its discre- ments assumed to work in tandem, ultimately forming governance tionary nature (Boivie et al., 2015; Budsaratragoon et al., 2020), board bundles to protect shareholder value (Rediker & Seth, 1995; Schiehll compensation captures the observable cost of conformity or noncon- et al., 2017). Applying a configurational logic, we analyze how bun- formity to good governance. dling board practices translates into conformity to good governance Board compensation design and practice differ from those of (Aguilera et al., 2012). In doing so, we can account for the comple- executive compensation in several important ways. First, in contrast mentarity and substitution concepts (Misangyi & Acharya, 2014). On to individually set executive fees, board compensation is set at the the one hand, complementarity refers to the complex interconnected team level to be uniform across the board (Boivie et al., 2015). In most systems where the effect of each element depends on the effect of countries, firms pay their boards through fixed fees with some addi- other elements (Milgrom & Roberts, 1995). There is growing evidence tional compensation for attending meetings and holding leadership of complementarity both within and between the two main board roles such as chair or participating in and chairing board committees functions (Hambrick et al., 2015; Li & Hambrick, 2005; Schiehll 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License PONOMAREVA ET AL. 403 et al., 2017). For example, Misangyi and Acharya (2014) demonstrate combinations of board practices are associated with conformity/ the complementarity between CEO incentive alignment and board nonconformity to good governance. Furthermore, interaction effects monitoring. On the other hand, Ward et al. (2009: 652) maintain that in regressions may have nuanced our understanding of the combina- “substitution can occur since the relative costs of each mechanism tory effects of variables, but they offer only a single path of the rela- vary and are reflected in shifts and movements of the cost constraint tionship studied. QCA overcomes the limits of interaction effects by line” suggesting that CEO incentive alignment and board monitoring exploring multiple paths to the same outcome (Ragin, 2008). Finally, may not be only complements but in some contexts may also substi- accounting for the possibility of asymmetry (Berg-Schlosser tute one another. et al., 2009), we explore whether the inverse conditions in the con- Considering the complementarity and substitution effects is figurations associated with conformity to good governance will result important for our theoretical argument, we account for the inter- in nonconformity. connected nature of different board practices that constitute the global good governance norm. This notion also implies equifinality, suggesting that the same organizational outcome can be achieved 3.2 | Sample and data collection through multiple combinations of practices (Aguilera et al., 2008). Taken together, the configurational approach provides a useful view We examine our proposition using data on publicly listed Swedish to examine the relationship between the practices reflecting the good firms. Our initial sample included all firms listed on the OMX governance norm and board compensation. Thus, we formulate the Stockholm Stock Exchange from 2010 to 2012. Information about the following proposition: boards was hand-collected from the annual reports of all 250 firms. However, due to the lack of information, some observations were Proposition. Conformity to multiple interconnected dropped from the sample. Based on a t-test on our board compensa- globally accepted good governance practices is likely to tion variable (see Appendix, Table A1), the final dataset of 587 obser- be associated with high board compensation. vations from 222 firms still represents the entire population of listed Swedish firms. Our empirical context is relevant to explore the relationship 3 | M E TH O DO LO GY between conformity to the good governance norm and board com- pensation for two reasons. First, in the last two decades, the Swedish 3.1 | Set-theoretic approach governance system has developed into a hybrid between the Eurasian stakeholder-oriented model and the Anglo-American shareholder- We use fuzzy set QCA (qualitative comparative analysis) (fsQCA) to oriented system (Heidrick & Struggles, 2009). Although Sweden has explore the combination of board practices related to good gover- one of the highest concentrations of ownership rights in the world nance. QCA is the prevalent analytical tool applied to understand (Euroclear Sweden, 2019), the dominance of incumbent blockholders complex set-theoretic relationships in management and organization such as families and business groups in Swedish firms is increasingly studies, particularly in corporate governance research (e.g., Federo & challenged by both institutional investors (Fogel et al., 2013). This Saz-Carranza, 2018; García-Castro et al., 2013; Haxhi & increasing presence of global institutional investors along with the Aguilera, 2017; Misangyi & Acharya, 2014). QCA has advantages over firms' integration in the global economy has created strong institu- correlation-based approaches when analyzing configurational relation- tional pressure for companies to conform to the global good ships because it allows researchers to have an intimate understanding governance norm. of the cases to reveal more probable explanations regarding the rela- Second, the Swedish Corporate Governance Code highlights the tionship being studied (Greckhamer et al., 2018; Parente & adoption of good governance practices. Designed in line with the Federo, 2019). It also enables exploring the three features of set- Organisation for Economic Co-operation and Development's (OECD) theoretic relations in the analysis: conjunction, equifinality, and asym- Principles of Corporate Governance and applying the “comply or metry (Misangyi et al., 2017). explain” principle, the Swedish code identifies the board as the cen- Adopting this approach allows us to embrace causal complexity tral body in the corporate governance system and emphasizes board by accounting for the following: (1) conjunction, that is, how the independence as a necessary condition to show the directors' ability interdependencies among good governance practices jointly shape to exercise vigilant monitoring. The Swedish Corporate Governance board compensation; (2) equifinality, that is, the simultaneous exis- Code mandates boards to have a majority of independent board tence of multiple pathways to good governance; and (3) asymmetry, members, and it does not permit CEO duality. Only one executive that is, the elements related in one configuration of the outcome can be a member of the board, and this is typically the CEO. Fur- may not necessarily be related in another that is associated to the thermore, the code requires the board to “collectively exhibit diver- inverse of the outcome. Unlike regressions that focus on the individ- sity and breadth of qualifications, experience and background […] ual effect of each variable, QCA analyzes the presence or absence of [and] to strive for gender balance on the board” while maintaining different conditions to understand how their combinations are asso- an efficient size (Swedish Corporate Governance Board, 2016, ciated with an outcome. In this study, we explore which Rule 4.1). 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 404 PONOMAREVA ET AL. 3.3 | Outcome: Board compensation 3.4.1 | High board independence from management We operationalized board compensation using the average compensa- With regard to board independence, the Swedish code emphasizes tion for each director, calculated as the sum of total compensation for board independence as a necessary condition to demonstrate the all directors divided by the number of directors. We converted the directors' ability to exercise vigilant monitoring. It mainly refers to the outcome into a fuzzy set using the 75th percentile as the fully-in conventional notion of board independence from management. We threshold and the 25th percentile as the fully-out threshold. Following measured this condition using the percentage of directors deemed as Fiss (2011), the crossover point is set at the midpoint of the fully-in independent in the annual reports and converted this to a fuzzy set. and fully-out thresholds. The crossover point was pegged at 37.5%, which is the critical mass of three (Konrad et al., 2008; Torchia et al., 2011) over the maximum recommended board size of eight (Collin et al., 2014). Fully-in is set at 3.4 | Global good governance norm conditions 75% (i.e., the minimum recommended number of directors over the maximum recommended number, 6/8), and fully-out is set at 12.5% With the goal of identifying board practices that are regarded as both (i.e., one over the maximum recommended number, 1/8). legitimate and efficient, we examined the various corporate gover- nance codes from around the world (including the Swedish Corporate 3.4.2 | High board independence from majority Governance Code), corporate law, the OECD's Principles of Corporate shareholders Governance, and related research on the topic. We then selected eight highly visible board practices and followed the seminal work of Since blockholding-dominant owners can be found in highly indepen- Hillman and Dalziel (2003) to group these practices into two broad dent boards in Sweden, we argue that low levels of director share categories, corresponding to the two central board functions ownership are a demonstration of board independence from the major- (i.e., monitoring and resource provision) that constitute the good ity shareholders. It should be noted that, although permitted, stocks governance norm. and options do not generally form part of the compensation structure Under the monitoring function umbrella, we include practices that of Swedish directors. A low level of director share ownership can thus are commonly associated with both efficient oversight and that are reflect the independence of directors from majority shareholders, be socially expected, that is, director independence from the manage- it substantive or symbolic in nature. We measured this as a percent- ment/majority shareholders, absence of CEOs in the board (Bertoni age of total director share ownership, specifically voting rights, rela- et al., 2014; Witt et al., 2021), and low audit fees (Desender tive to the total outstanding shares (Collin et al., 2017). We converted et al., 2013). Similarly, under the resource provision function, we the condition to a fuzzy set where full membership is pegged at the include practices that are commonly associated with improved corpo- 75th percentile (0.35), whereas full nonmembership is set at the 25th rate governance due to their potential efficiency benefits and social percentile (20.58). Following Fiss (2011), the crossover point is the acceptance, that is, the presence of international (Oxelheim & midpoint of full membership and full nonmembership thresholds Randøy, 2003) and female directors (Gregorič et al., 2017), director (10.47). A value above the midpoint is considered a high percentage interlocks (Davis et al., 2003), and optimal board size (Federo & of board shares, and a value below the midpoint is considered a low Saz-Carranza, 2020; Guest, 2008). As these practices are disclosed in percentage of board shares. most annual reports, they can be easily observed by interested stake- holders and thus become important signals of firm conformity to the 3.4.3 | Absence of the CEO on the board good governance norm. Given that the purpose of our study is to examine conformity to As mentioned earlier, the Swedish code does not permit CEO duality, the globally legitimate norm of good governance, we do not distin- though it allows one member of the management team, typically the guish whether these practices are substantive or symbolic in nature. CEO, to be appointed as a director. Thus, the absence of the CEO on We also caution that this is an ideal-type categorization and does not the board represents the independence of the directors from manage- imply that each practice is necessarily exclusive to either function. ment. We operationalized this factor according to whether the CEO For example, stakeholders may perceive CEO's presence on the was also a board member. We coded for the absence of CEO on the board as efficiency loss due to its potential negative effect on the board as 1 and presence as 0. board's ability to monitor and a legitimacy threat as it indicates lack of board independence which deviates from the accepted institu- tional norm of good governance. At the same time, the conformity to 3.4.4 | Low audit fees such practice may be perceived as a potential efficiency gain from providing an arena for information exchange between executives and Auditors can substitute board monitoring activities, and the audit fees directors. are discretionary in nature, that is, they are not mandated by the 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License PONOMAREVA ET AL. 405 Swedish code, falling into the “realm of strategic board behavior” number of directorate positions for the entire board. We calibrated (Desender et al., 2013: 824). In the Swedish system, the same com- this into a fuzzy set where full membership is pegged at the 75th per- mittee that nominates directors also recommends the auditors and centile (4.50), and full nonmembership is set at the 25th percentile their corresponding fees. Strong monitoring by external auditors (2.71). The crossover point is pegged at the midpoint (3.61). reflected in high audit fees is expected to reduce the need of board monitoring. Thus, we expect lower audit fees most likely to exhibit stronger board monitoring. We used the condition showing the per- 3.4.8 | Presence of an optimal board size centage of external audit fees in relation to total sales and converted this to a fuzzy set. Full membership is set at the 75th percentile In addition to the pressure to enrich board capital, the Swedish code (0.10%), whereas full nonmembership is set at the 25th percentile mandates firms to maintain an efficient board size. We thus consider (0.33%). The crossover point is set at the midpoint (0.21%). optimal board size as potentially exhibiting that the nominating com- mittee can manage the strong pressure from stakeholders seeking board presence while addressing the pressure to enhance the diver- 3.4.5 | Presence of international directors sity of board capital, all the while maintaining efficient board size. Board size is the number of board directors. Previous studies suggest Board capital is an important element of board design as it presumably that the optimal board size in Sweden ranges from six to eight direc- represents the board's ability to provide resources to the firm. The tors (e.g., Collin et al., 2014). We coded values that fell within the ideal highly international orientation of Swedish firms incentivizes the board size range as 1, whereas we coded those outside the range as inclusion of international directors who possess resources that can 0, a crisp set. benefit the firm. Thus, their presence is important to exhibit confor- mity to the good governance norm, positively viewed by international investors, suppliers, and customers. We distinguished between Scan- 3.5 | Fuzzy sets QCA dinavian directors who belong to the group of Nordic countries (i.e., Denmark, Norway, and Sweden) and share strong cultural and, in The use of fuzzy sets refines set membership, particularly when condi- some cases, language similarities, from international directors, that is, tions are continuous in nature (Ragin, 2008). It provides the degree of directors of non-Scandinavian origin present on the board. We coded membership within a specific set in a certain condition. Given that for the presence of international directors as 1 and their absence as some of our conditions are continuous, we used fsQCA to preserve 0 as a crisp set. the richness of our dataset when identifying the configurations. We specifically used the fsQCA software to perform our analysis. In doing so, we followed three steps. The first was transforming 3.4.6 | Presence of female directors the conditions to either crisp or fuzzy sets (see Table 1; see also Appendix Table A2 for the descriptive statistics and correlation of the Although the Swedish Corporate Governance Code only exercises outcome and conditions). On the one hand, we manually coded binary soft regulatory pressure regarding gender balance on corporate conditions into crisp sets of 1 (presence of the condition) or 0 (absence boards—that is, there is no gender quota law in Sweden, there is of the condition). On the other, we calibrated continuous conditions strong normative pressure to conform, since both the code and public as fuzzy sets using specification thresholds based on our theoretical opinion explicitly support gender diversity in Swedish boards and substantive knowledge. For instances where no theoretical basis (Freidenvall, 2018; Umans & Smith, 2013). Thus, we account for the was possible, we adopted the calibration thresholds using data distri- presence of female directors as a structural feature that potentially bution (Greckhamer, 2016; Parente & Federo, 2019). Cases in the exhibits board diversity. We coded for the presence of female direc- upper range had values closer to 1, whereas cases in the lower range tors on the board as 1, and their absence as 0, a crisp set. had values closer to 0. We carried out the conversion to fuzzy sets through the fsQCA software feature (see Table 1 below for the sum- mary of calibration of variables). 3.4.7 | High director interlocks The second step was building the truth table (see Appendix Tables A3 and A4), showing the different rows of all the possible com- Since the Swedish governance system is characterized by small-world binations of conditions that yielded the outcome. The theoretically features, there is also a small pool of candidates who have the neces- possible number of rows was 256, which represents 2k (where k is sary social and human capital to serve on boards, resulting in tight 8 and the number of conditions used in the analysis). The goal in this interconnections among the corporate elites through multiple board stage was to cover as many rows as possible to maximize the data for appointments (Sinani et al., 2008). Therefore, the presence of high our analysis. There were 106 combinations with at least one observed director interlocks presumably represents good governance, as it sug- case. However, our frequency threshold was set at four cases to cover gests the firm's network connections that provide access to social at least the recommended minimum 80% of the cases. The final num- capital. We operationalized director interlocks using the average ber of rows was 42. 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 406 PONOMAREVA ET AL. TABLE 1 Calibration of outcome and conditions Calibration Variable Operationalization Type Membership Threshold/ degree Criteria code Outcome Conformity to good Board compensation Fuzzy Fully-in 75th percentile 342,857.00 governance SEK Crossover Midpoint 247,931.12 SEK Fully-out 25th percentile 153,005.25 SEK Conditions Monitoring High board independence from management Fuzzy Fully-in 6/8 75% Crossover 3/8 37.5% Fully-out 1/8 12.5% High board independence from majority Fuzzy Fully-in 75th percentile 0.35% shareholders Crossover Midpoint 10.47% Fully-out 25th percentile 20.58% Absence of CEO on board Binary Fully-in Absence 1 Fully-out Presence 0 Low audit fees (percentage of audit fees over Fuzzy Fully-in 75th percentile 0.10% sales) Crossover Midpoint 0.21% Fully-out 25th percentile 0.33% Resource provision Presence of international directors Binary Fully-in Presence 1 Fully-out Absence 0 Presence of women directors Binary Fully-in Presence 1 Fully-out Absence 0 High director interlocks Fuzzy Fully-in 75th percentile 4.50 Crossover Midpoint 3.61 Fully-out 25th percentile 2.71 Ideal board size Fuzzy Fully-in Within the 6 to 8 range Fully-out Outside the <6 > 8 range The third step involved logically reducing the truth table to simpli- 4 | FI ND I NG S fied configurations. The fsQCA software using Boolean algebra facili- tated this reduction. Our raw consistency threshold when performing In line with best practices when conducting QCA analyses, we first the analysis was set at the recommended minimum value of 0.80 examined the necessity and sufficiency of individual conditions. A (Ragin, 2006). Although intermediate solutions are typically reported necessary condition produces the outcome if its presence or as results, we chose to report the complex solutions in the configura- absence occurs consistently in the configuration (with a consistency tion table for two reasons. Firstly, we conducted our analysis with a score of at least 0.90), whereas a sufficient condition produces the relatively large sample size. Although prior research argues that coun- outcome by itself (with a consistency score of at least 0.80) terfactual analysis may be helpful in addressing limited diversity, this (Ragin, 2006). is only particularly relevant to analyses with small samples During our analysis, we did not find any sufficient condition that (Ragin, 2008). Secondly, our cases represented nearly the total popu- would lead to an outcome by itself, indicating that none of the individ- lation. Hence, if the configuration is not observed, the counterfactual ual board practices are sufficient to be associated with high/low board is likely to be rare or nonexistent. Our decision to report the complex compensation. However, we found that the presence of female direc- solution resulted in configurations as close as possible to our dataset tors on the board was a necessary condition within a set of conditions (e.g., Garcia-Castro et al., 2013). that are jointly associated with high board compensation (see 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License PONOMAREVA ET AL. 407 Appendix Table A5). This is not surprising as gender diversity is one of 4.1 | Configurations of high board compensation the most widely publicized aspects of good governance worldwide and is explicitly stipulated in the Swedish Corporate Governance Code We found four configurations that are associated with high levels of (Freidenvall, 2018; Umans & Smith, 2013). In addition, we also found board compensation (see solutions H1–H4 in Table 2). These four that a high level of board independence from management is a neces- configurations have at least four common practices, indicating that sary condition in configurations associated with low levels of board conforming to good governance through the adoption of multiple compensation, primarily because of the Swedish code's strict require- board practices is associated with high levels of board ment regarding the minimum percentage of independent directors on compensation—and this supports our overarching proposition. the board. Based on our familiarity and qualitative knowledge of our empiri- Table 2 shows the configurations that emerged from our analysis, cal subjects, further analysis allowed us to group the resulting configu- with their corresponding coverage, that is, the distribution of cases to rations associated with conformity to the good governance norm into indicate the empirical relevance of the configurations (Ragin, 2006). two categories: full compliance strategy (H1) and selective compliance We used the following notations to present the results (Fiss, 2011; strategy (H2–H4). As firms choose to conform to good governance, Ragin & Fiss, 2008): “●” represents the presence of the condition, they can do so by pursuing a full or selective compliance strategy. N “ ” represents the absence of the condition, and a blank space rep- Under the full compliance strategy, boards are designed to maximize resents a “do not care” condition that may be either present or absent the number of characteristics associated with good governance in configurations. (a “ticking-the-box” approach). Fully compliant boards (solution H1) TABLE 2 Configurations of conformity and nonconformity to good governance High Low Configurations H1 H2 H3 H4 L1 L2 L3 L4 Monitoring conditions (1) High board ● ● ● ● ● ● ● ● independence from management (2) High board ● ● ● ● ⨂ ⨂ ⨂ independence from majority shareholders (3) Absence of CEO on ● ⨂ ⨂ ⨂ ⨂ ● ● ● board (4) Low audit fees ● ● ● ● ● ⨂ ⨂ ⨂ Resource-provision conditions (5) Presence of ● ● ⨂ ● ⨂ ⨂ ⨂ ⨂ international directors (6) Presence of female ● ● ● ● ● ● ● directors (7) High director ● ⨂ ⨂ ⨂ interlocks (8) Ideal board size ● ⨂ ● ⨂ Consistency 0.89 0.99 0.82 0.93 0.81 0.91 0.87 0.83 Raw coverage 0.07 0.09 0.10 0.05 0.06 0.08 0.14 0.16 Unique coverage 0.07 0.06 0.10 0.02 0.06 0.03 0.04 0.09 Solution consistency 0.89 0.85 Solution coverage 0.29 0.31 Sample cases: Millicom Electrolux JM Boliden Meda Duni Traction Allenex Betsson Aspiro CDON Volvo Intellecta Dedicare Cellavision Biogaia Tele2 Ericsson Softronic Ortivus Heba DGC one Note: ●, presence of condition; ⨂, absence of condition; blank space, “do not care” condition. 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 408 PONOMAREVA ET AL. include all the structural elements associated with board monitoring, absence of international directors and high director interlocks, and resource provision is present in the configuration (even though whereas H4 includes the presence of international directors and low “high director interlocks” is a “do not care” condition). Several techno- director interlocks. Further exploration of the cases reveals that firms logical companies such as Millicom International Cellular SA exhibiting solution H3, such as JM AB (a real estate developer) and (a telecommunications and media company), CDON Group (a digital Boliden AB (a mining and smelting company), have their local directors commerce firm), and TELE2 (a European telecommunication provider) also serving on other corporate boards outside Scandinavia. Perhaps exemplify this strategy. These are multinationals with international national directors with extensive international networks already capital, obtained through listings on multiple stock exchanges, and reduce dependence outside of Scandinavia, thereby also reducing the they have a dispersed ownership structure—which probably indicates need for international directors. strong institutional pressure to conform to good governance practices Similar to H2, firms showing H3 probably require resources from (Oliver, 1991). highly connected representatives of business groups sitting on their For example, institutional investors who represent the interests boards. Meanwhile, firms exhibiting solution H4, such as Meda AB of minority owners and typically have diverse portfolios have consid- (a pharmaceutical company) and Duni AB (a food packaging com- erable ownership in these firms. They could exert pressure for such pany), already have international directors who possess the resources firms to mimic what constitutes good governance based on their to help build connections abroad. This suggests that firms may experience in other firms (e.g., Federo et al., 2020). Thus, full compli- rely on attracting international directors or directors with high inter- ance illustrates the interplay of different institutional forces influenc- national interlocks to their boards to convey conformity to good ing board design strategies. Fully compliant boards not only adhere to governance. The choice may depend on the efficiency motive the conditions enforced by the coercive pressure of the Swedish Cor- (i.e., resource needs) and legitimacy concerns (i.e., giving an image of porate Governance Code (i.e., required percentage of independent a more inclusive board). Taken together, when designing their boards, directors and the presence of female directors on the board) but also firms may opt for a selective compliance strategy that still indicates abide by normative pressures (i.e., high board independence from conformity to good governance. Firms may either increase the size of majority shareholders, the absence of the CEO on the board, and their boards by adding the CEO while preserving board practices internalizing some governance practices by paying low external audit associated with good governance (H2) or choose to fortify their fees) and perhaps by mimicking what other major actors are doing boards with directors with strong international social and human cap- (e.g., the presence of international directors and having the ideal ital (H3 and H4). board size). Overall, the configurations suggesting conformity to good gover- Our findings also reveal that good governance does not necessar- nance range from full (solution H1) to selective compliance strategies ily mean incorporating all the recommended board practices into the (solutions H2-H4). Configurations with full compliance show that all board design to achieve conformity (i.e., solutions H2, H3, and H4). the recommended board practices can be observed. Whereas in selec- Boards can also deviate from H1's full compliance strategy (H2–H4), tive compliance scenarios, firms do not substantially deviate from rec- thereby demonstrating agentic behavior through governance discre- ommended practices. We also observe that practices with coercive tion (Aguilera et al., 2018). With regard to the monitoring aspect, all pressure are adopted across all four configurations (i.e., a high level of three solutions (H2–H4) share the condition of CEO presence on the independence from management and the presence of female directors board. Perhaps having a high percentage of independent directors on are uniform across all four configurations), while practices that are the board already suggests a weakened CEO power, and this may pre- subject to normative and mimetic pressures show more deviations vent compromising the monitoring function of the board. Moreover, (CEO presence on the board, presence of international directors, granting voting rights to CEOs may incentivize their board engage- director interlocks, and ideal board size). Interestingly, all four configu- ment and the provision of information to nonexecutive directors, rations associated with high board compensation show the presence which are important for carrying out board functions (Adams & of low audit fees. In general, our findings indicate that high levels of Ferreira, 2007). Alternatively, the presence of the CEO on the board board compensation are associated with conformity to good gover- can also be an indicator of strong managerial power vis-à-vis the nance in that high compensation is driven by designing the board to board; thus, it is possible that this CEO may influence the board to exhibit good governance. However, CEO presence on the board in increase executive and/or board compensation (Bebchuk et al., 2010). H2–H4 could support two alternative explanations: one indicating an With regard to the resource provision aspect, there is variation in enhancement of the resource provision function by incentivizing the practices among the solutions. In solution H2, the striking board prac- CEO to share information with the directors or, alternatively, it may tice is having a larger board than the recommended size, and the con- indicate the CEO's power over the board. figuration requires having international directors on the board. For some cases showing a suboptimal board size of nine directors (e.g., AB Electrolux, Atlas Copco AB, Enquest Plc, and Volvo AB), the CEO 4.2 | Configurations of low board compensation likely occupies the extra board seat. Meanwhile, solutions H3 and H4 suggest a substitution effect between the presence of international We also found four configurations that are associated with low levels directors and high director interlocks. Solution H3 includes the of board compensation (see solutions L1–L4 in Table 2). Among these, 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License PONOMAREVA ET AL. 409 we observe fewer practices associated with good governance. How- which are in the public spotlight and receive considerable public ever, we also note that all four configurations have high board inde- attention. Thus, because of the high cost of full compliance, we infer pendence from management as a necessary condition (see Appendix that they adopt a minimum level of monitoring through auditors Table A5). Three out of four configurations (L1, L3, and L4) explicitly rather than through the board. Transferring the monitoring function require the presence of a female director, whereas the condition is from the domain of the board to other governance domains may not not important in L2. The presence of independent directors and necessarily imply an active choice, indicating low governance female directors in these configurations can be attributed to the coer- discretion. cive force exerted by the Swedish Corporate Governance Code that For firms that rely on dominant insiders to contribute to gover- stipulates both practices (Swedish Corporate Governance nance needs (which we term ‘internalized strategy’) or when delegat- Board, 2016). These findings indicate that examining the individual ing governance to external mechanisms (which we refer to as an effect of board independence from management and the presence of ‘externalized strategy’), the influence of coercive force to comply with women directors does not actually offer definitive conclusions; code requirements on board independence and gender diversity instead, they should be analyzed in combination with other factors to appears to be particularly strong, while other institutional forces seem draw meaningful conclusions about their actual influence on board to play a reduced role in board designs that do not conform to good compensation. Meanwhile, we find that adopting other practices— governance. In particular, we show that the board configurations such as CEO duality, recommended board size, and audit fees—is a associated with low board compensation do not necessarily yield to subject of normative and mimetic pressures. external normative and mimetic pressures to adopt specific board The bundles associated with low board compensation are notice- design practices. However, configuration L1 differs from the rest of ably distinct from those associated with high board compensation. configurations associated with nonconformity (L2–L4). L1 reflects the Firstly, these boards have little independence from majority presence of dominant insiders which deviates from the good gover- shareholders—although this condition is not important in solution L4. nance logic, while configurations L2–L4 do not appear to manifest Secondly, none of the configurations require the presence of interna- active agency by externalizing the monitoring function to other corpo- tional directors or high levels of director interlocks. Thus, these con- rate governance practices (external auditors). figurations indicate nonconformity to good governance. Based on our findings, we deduce two ideal-type strategies used by firms that choose not to conform to good governance. Namely, these firms are 4.3 | Board design strategies more likely to internalize board functions, as reflected by boards that are dominated by insiders such as the CEO and majority shareholders Our findings indicate that both conformity and nonconformity to the (solution L1). Alternatively, nonconforming firms may externalize good governance norm can be achieved through multiple board con- board governance by relying on external mechanisms, such as inde- figurations, illustrating the discretionary nature of board designs and, pendent auditors reflected in high audit fees (solutions L2–L4). thus, the presence of active agency (Oliver, 1991). These two distinct In solution L1, the presence of the CEO and majority shareholders forces revealed through our empirical analysis have been explored in on the board, together with low audit fees, suggests low levels of the classic debate on the tension between institutional and agentic board independence vis-à-vis the insiders: powerful managers and forces in institutional theory (Zucker, 1991) and in research on the shareholders, which goes against the good governance norm. This heterogeneity of corporate governance practices (Aguilera configuration can be typically observed in entrepreneurial service- et al., 2018; Bell et al., 2014; Xie et al., 2021). Drawing on the notion oriented firms (e.g., Traction, Intellecta, and Softronic) controlled by of firm strategic choice being the product of both institutional and either the founder or a family group. These firms may experience high argentic forces, we deduce four archetypical board governance strate- resource dependency and thus face resource versus power tradeoffs gies jointly shaped by distinct combinations of conformity to good (cf., Garg & Eisenhardt, 2017) reflecting the shareholders' heightened governance and agentic behavior in the form of governance discretion involvement on the board. The deviation from the good governance (see Figure 1 for details). By considering the two forces uncovered in norm indicates the presence of an active governance choice, that is, our empirical analysis, we theorize that firms appear to follow four the choice to internalize board governance. Accordingly, firms that distinct board design strategies: full compliance, selective compliance, exhibit this configuration reveal their governance discretion. internalized governance, and externalized governance. In contrast, firms can also choose to externalize their monitoring Firms that conform to the good governance norm may choose function by relying on external auditors (solution L2–L4), a strategy between full compliance and selective compliance. The full compli- that lowers the costs of board monitoring. Moreover, the CEO is not ance strategy (H1) reflects adherence to institutional pressure, be it part of the board, and this suggests reduced managerial power in because of efficiency and/or legitimacy reasons. Conversely, the board decision-making. Dedicare (one of the two largest staffing selective compliance strategy (H2–H3) indicates a presence of agentic agencies in Sweden), Cellavision (the largest digital microscopy pro- behavior through governance discretion by selecting particular combi- vider in Sweden), and Biogaia (a globally established probiotics firm) nations of good governance practices constituting a board design that are among the firms exhibiting this configuration. We observe that suits the firm's governance needs. Moreover, firms that do not con- these companies cater to industries such as healthcare and real estate, form to the good governance norm may either externalize or 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 410 PONOMAREVA ET AL. internalize board governance. The internalized board governance are not necessarily mutually exclusive; rather, they jointly shape orga- strategy (L2–L4) indicates a presence of agentic behavior through nizational governance outcomes. governance discretion by adopting practices that deviate the domi- nant institutional logic. In contrast, the externalized board governance strategy (L1) indicates low governance discretion (as the function is 4.4 | Robustness checks performed through a governance mechanism other than the board). Taken together, we attribute these four archetypical board design To test the robustness of our results, we performed two additional strategies to the interplay between the pressure to conform to the explorations (see Table 3). First, we examined the effect of other con- institutional norm and the extent of governance discretion that shows ditions, such as the board's structural characteristics and firm size, firm agentic behavior. both of which are typically associated with board practices related to The notion of complementarity between the two central forces good governance. For example, we added conditions pertaining to that jointly shape board governance refines the extant research on board committees. We investigated if the number of committees, the firm heterogeneity which has theorized that conformity to institu- structure of these committees, and their types affected our results. tional pressure and active agency are two opposite forces, implicitly We found no changes in the results. We observed that there are no assuming that conformity to institutional norms implies the loss of noticeable variations in board committee practices, perhaps due to governance discretion (Oliver, 1991). Exploring this tension in the the explicit requirements in the Swedish code that call for uniformly context of board governance, we further unpack the debate about the structured board committees. This suggests that the many Swedish relationship between institutional and agentic forces (Aguilera firms abide by the code's requirements. We also added board meet- et al., 2018), proposing that these two forces are interconnected and ings and the directors' ages as possible conditions that might influence FIGURE 1 Board design strategies TABLE 3 List of performed robustness checks Robustness checks Change in the configurations Change in consistency Change in coverage Added conditions Number of committees None None None Structure of committees None None None Type of committees None None None Board meetings None None None Director age None None None Firm size Yes (logically equivalent) Yes None Changed calibrations Percentage to presence of independent directors None None None Presence to percentage of international and None None Slight decrease female directors Presence to critical mass of female directors None None None Using the means instead of midpoint for the cross- Yes (no consistent configurations) Yes Yes over point of director compensation, board shareholding, audit fees, and director interlocks Using 95th percentile for fully-in and 5th None None None percentile for fully-out thresholds of fuzzy sets 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License PONOMAREVA ET AL. 411 the compensation paid to the board. These variables have not shown board practices to design a board that fits with their governance any effect, possibly because Swedish board compensation is relatively needs (e.g., Ponomareva & Ahlberg, 2016). This implies that confor- homogeneous within the board. mity to good governance is in the overall configurational board design, In addition, we performed further analysis to check whether firm rather than the sum of individual board practices. size influenced the configurations. In line with our interpretations of results, we found that large firms are associated with high levels of board compensation and small firms tend to appear in the configura- 5.1 | Implications tions associated with low board compensation. However, we also uncovered that large firm size is associated with low board compensa- Our study contributes to board governance literature in several ways. tion, suggesting that although firm size matters for high levels of First, our findings support research on the institutional pressure to board compensation, other factors that could distinguish the level of conform to the global good governance norm, as boards that yield to board compensation among firms are likewise important. Neverthe- the interplay of coercive, normative, and mimetic pressures—by fol- less, when we added firm size to our analysis, the resulting configura- lowing the recommended practices—are associated with high levels of tions were logically equivalent, which means that the shown board compensation; that is, they are willing to assume high costs to configurations in Table 2 do not contradict those configurations that adopt a conformity strategy with high levels of compliance. Rather emerged from adding firm size into the model1 (e.g., Ragin & than debating about the performance benefits of conformity to the Sonnett, 2005; Schneider & Wagemann, 2007, 2010). good governance norm, we focus on the costs of such conformity, an Secondly, we explored the effect of applying different calibrations issue that has received little attention in previous research. By analyz- of the conditions in our analysis. For instance, we checked whether ing the bundles associated with high and low board compensation, we changing the percentage of independent directors and the presence identify that conformity to good governance, be it symbolic or sub- of independent directors affected the results. The results did not stantive in nature, entails high costs for firms, which could be an change because the condition was constant across the cases. This is important factor when designing boards. due to the Swedish code requiring all firms to have an independent Furthermore, we also observe that having more independent and director on the board. We also checked whether changing the pres- female directors appears in all configurations (which are associated ence of female and international directors to their percentage relative with both high and low levels of board compensation), indicating the to board size would affect the results. This resulted in a slight acquiescence of firms to the coercive pressure of the Swedish code. decrease in coverage, but the configurations remained the same. Noticeably, adopting other board practices (e.g., the absence of the Moreover, with regard to female directors, we also explored whether CEO on the board, the presence of international directors, the high the critical mass of three (Torchia et al., 2011) would change the level of director interlocks, or maintaining an optimal board size), results. The results remained the same. Thus, we decided to keep the which are expected by normative and mimetic pressures on firms, is crisp sets for the sake of parsimony, while maximizing the number of discretionary in nature. In addition, these practices can be mixed and observations. We also recalibrated the fuzzy sets of continuous vari- matched in the overall board design. Thus, our findings suggest that ables (director compensation, board shareholding, audit fees, and coercive pressures alone do not determine a firm's choice to adhere director interlocks) by using the means rather than the midpoint. to good governance. Instead, normative and mimetic pressures, that However, no consistent results emerged. This is attributable to the is, the discretionary part of board design, may be the elements which mean being closer to the full membership threshold of director com- influence the cost of conformity to good governance. pensation, and the mean is above the full membership threshold for Second, we contribute to the theory of heterogeneity of firm gov- audit fees. We then expanded the thresholds to reflect the 95th ernance (Aguilera et al., 2018) by showing that, despite the global (fully-in) and 5th (fully-out) percentiles. However, the results remained institutionalization of good governance, board designs differ across logically equivalent to our final results above. Thus, we maintained the firms. Our analysis reveals four distinct archetypes of board design current thresholds used in the final analysis. strategies jointly shaped by the institutional forces pressure to con- form to the good governance norm and the agentic forces through firm governance discretion. Our findings offer a fresh perspective on 5 | DISCUSSION AND CONCLUSION the classic debate in institutional theory about the inherent tension between institutional and agentic forces (Zucker, 1991) and more In this study, we sought to address the shortcomings of extant board recent research on corporate governance deviance (Aguilera research by examining the joint effects and costs of adopting board et al., 2018; Xie et al., 2021). By exploring the tension between con- practices in keeping with the global good governance norm. Our find- formity to the good governance norm and governance discretion in ings reveal that bundling the recommended board practices to con- the board governance context, our study demonstrates that these form to this norm has high costs. Second, an attempt to conform to two forces can coexist and they are, in fact, interrelated rather than the norm can manifest through distinct board design strategies that antagonistic. We thus question the prevailing global governance logic, seek both efficiency and legitimation. Although some firms appear to which advocates full compliance of recommended board practices follow a “ticking-the-box” approach, others carefully combine select according to the existing corporate governance codes (e.g., Aguilera & 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 412 PONOMAREVA ET AL. Cuervo-Cazurra, 2004; Desender et al., 2013; Rosenstein & as directors will be more sensitive to stock market reactions because Wyatt, 1990). board structure and composition constitute a powerful indicator for Finally, our study contributes to the understudied topic of board investors. On the other, regulation is more stringent in the compensation. We first highlight the economic and symbolic signifi- United States. (i.e., more litigation and less room for discretion) than cance of boardroom pay and subsequently provide evidence on the in other countries, narrowing firms' governance discretion (Aguilera role of institutional forces that shape board compensation (e.g., Boivie et al., 2018) and thus indicating that the cost of conformity is already et al., 2015; Budsaratragoon et al., 2020). We find evidence absorbed by overall high board compensation. suggesting that coercive pressures do not determine board compensa- Third, QCA restricts us from using all the possible practices that tion; instead, we show that normative and mimetic pressures suggest good governance. Since we use the most salient conditions do. Although the current literature on board compensation is largely that emphasize board monitoring and resource provision to embody dominated by economic perspectives, such as agency theory, our good governance, we encourage expanding this to include other gov- study deviates from the prominent approach by drawing attention to ernance conditions such as external mechanisms (e.g., regulatory the interplay between institutional and agentic forces that influence frameworks and media) and the structural characteristics of the exec- the relationship between conformity to good governance and board utive team and their incentive structures which can also affect the compensation. configurations emerging from the analysis. Moreover, our analysis has not accounted for the temporal aspect. We urge future researchers to investigate whether changes in configurations affect governance costs 5.2 | Limitations and future research (i.e., board compensation) over time. It is important to note that we do not claim if boards conforming to good governance practices imply Our research has several limitations. First, our study focuses on one high costs for investors in general, since we only explore one particu- particular cost of conformity: board compensation. In this study, we lar aspect of governance costs: those related to board compensation. do not account for other types of costs associated with conformity to We can only speculate that high costs are investments in addressing good governance, such as opportunity costs (Aguilera et al., 2008) that stakeholder concerns, which in turn can result in high gains on other could be explored in future research. Similarly, our measure of confor- aspects such as enhancing legitimacy and keeping and/or attracting mity does not inform us whether good governance practices are sym- investor capital. Furthermore, we do not claim that firms conforming bolic or substantive in nature and conformity to the good governance to the good governance norm perform better than those that do not. norm is driven by efficiency and/or legitimacy concerns. We thus It would be interesting, though, to explore how the good governance encourage future studies to move beyond the implicit assumption that bundles affect firm outcomes to justify the high costs of conformity. the presence of good governance practices guarantees their imple- Examining firm outcomes is a further natural step in understanding mentation and test it empirically. For example, future studies could the consequences of the symbolic and/or substantive applications of conduct survey questionnaires asking the board and/or top manage- good governance practices. ment if they follow the good governance norm and then compare such responses with the practices observed in board structure and composition. This could show the potential decoupling between the 5.3 | Conclusion formal adoption of good governance and its actual practice in the boardroom (Westphal & Zajac, 2001). The notion of good governance has evolved into a legitimate global Second, our exploration of good governance practices is centered norm that has been institutionalized across research, practice, and pol- on Sweden, which may restrict our results to being context specific. icymaking worldwide. However, our understanding of the conse- However, given the global nature of the good governance norm and quences of adopting this global good governance norm is still limited. the comparability of Swedish board compensation practices to those We thus urge future research to explore the costs associated with around the world, our findings may be relevant for other institutional conformance to good governance and rebalance the currently one- contexts. Despite resembling dominant practices around the world, sided view of the literature that largely emphasizes the benefits of the major difference between the Swedish board compensation prac- good governance. We also hope that our findings can help business tices and those in Anglo-Saxon contexts is the absence of stock- and leaders make better strategic choices with regard to the design of option-based compensations in Sweden (Burns et al., 2021). Notwith- their corporate boards, as we provide a more holistic picture that standing, even when accounting for stock and options grants and accounts for both the benefits and the costs of conformity to the board committee and meeting attendance fees, “director compensa- global good governance norm. tion [in the US context] is generally fairly uniform across the board” (Boivie et al., 2015: 1589), thereby pointing to the relevance of our ACKNOWLEDG MENTS study to such contexts. Nevertheless, this is an empirical question, The authors thank Associate Editor Prof. Krista Lewellyn and the two and we encourage future research to test our proposition in other anonymous reviewers for their helpful guidance and suggestions. We countries. On the one hand, the presence of variable components in also thank Wei Shen for his comments on earlier version of the manu- director compensation structures may amplify the cost of conformity, script and Maryna Brychko together with Nellie Gertsson for data 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License PONOMAREVA ET AL. 413 assistance. Yuliya Ponomareva and Ryan Federo gratefully acknowl- Bertoni, F., Meoli, M., & Vismara, S. 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Postscript: Microfoundations of institutional thought. 1057/emr.2008.1 In W. Powell & P. DiMaggio (Eds.), The New Institutionalism in Organi- SpencerStuart. (2018). Board index. https://www.spencerstuart.com zational Analysis (pp. 103–167). University of Chicago Press. 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 416 PONOMAREVA ET AL. AUTHOR BIOGRAPHI ES Harvard University. Her research interests lie at the intersection of strategic organization, economic sociology, and global strategy, Yuliya Ponomareva is a Serra Húnter fellow in Management at specializing in international corporate governance and corporate the Department of Business at Autonomous University of Barce- social responsibility. She serves on the Board of Directors of the lona. She received her Ph.D. in Management from Linnaeus Uni- Strategic Management Society and the International Corporate versity in Sweden. Yuliya's research interests include the boards Governance Society and is a Fellow of the Academy of Interna- of directors, top management teams, and the role of owners in tional Business and the Strategic Management Society. corporate governance. She is an associate editor at Journal of General Management and serves as an ad hoc reviewer at several Sven-Olof Collin is Professor of Corporate Governance at Free leading management journals. University of Scania, Sweden and Affiliate Professor at Kharkiv University of Humanities ‘People's Ukrainian Academy’, Ukraine. Ryan Federo is an associate professor in the Department of Busi- He has published in the areas of corporate governance, family ness Economics at Universitat de les Illes Balears-Palma de firms, accounting, auditing, public management, gender, business Mallorca, Spain. He received his Ph.D. from ESADE Business ethics and methodology. His current research interests focus on School-Ramon Llull University. His research interests are at the corporate governance, especially ownership and the ideologies of crossroads of strategic management, corporate governance, inter- corporate governance. national relations, and public administration. His current works combine these fields to understand the management and gover- nance of international organizations (e.g., multinationals and inter- governmental organizations) and the integration of market and How to cite this article: Ponomareva, Y., Federo, R., Aguilera, nonmarket strategies. He served as a board director of two family R. V., & Collin, S.-O. (2022). The cost of conformity to good firms in Dubai, U.A.E. and the Philippines. governance: Board design and compensation. Corporate Governance: An International Review, 30(4), 399–420. https:// Ruth V. Aguilera is the Distinguished Darla and Frederick Brodsky doi.org/10.1111/corg.12408 Trustee Professor in Global Business at the D'Amore-McKim School of Business at Northeastern University and a visiting pro- fessor at ESADE Business School. She received her Ph.D. from APPENDIX A TABLE A1 T-test Full sample (n = 750) Final sample (n = 587) Difference Average board compensation 300,574.60 SEK 304,088.16 SEK 3513.56 (n.s.) SEK PONOMAREVA ET AL. TABLE A2 Descriptive statistics and correlation Board Board independence Absence of Board independence from from majority CEO on Audit International Female Director Board Mean S.d. compensation management shareholders board fees directors directors interlocks size Board compensation in 304,088.16 290,837.54 1 SEK Board independence 0.67 0.19 0.01 1 from management Board independence 13.71 20.53 0.17 0.19 1 from the majority shareholders Absence of CEO on 0.56 0.50 0.10 0.26 0.08 1 board Audit fees 0.03 0.41 0.03 0.02 0.00 0.03 1 International directors 0.69 1.57 0.51 0.05 0.16 0.09 0.02 1 Female directors 1.51 0.89 0.19 0.09 0.08 0.15 0.08 0.09 1 Director interlocks 3.74 1.48 0.01 0.03 0.08 0.01 0.04 0.12 0.15 1 Board size 6.59 1.50 0.38 0.17 0.15 0.36 0.05 0.40 0.46 0.11 1 417 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 418 PONOMAREVA ET AL. TABLE A3 Truth table—conformity Conditions Outcome Consistency (1) (2) (3) (4) (5) (6) (7) (8) Conformity N Raw PRI 1 0 0 0 1 1 0 0 1 8 1.00 1.00 1 0 0 0 1 1 0 1 1 19 0.99 0.99 1 0 1 0 1 1 1 0 1 14 0.93 0.92 1 0 0 0 1 1 1 0 1 8 0.85 0.84 1 0 0 0 0 1 0 1 1 7 0.83 0.80 1 0 1 0 1 1 1 1 1 10 0.82 0.77 1 0 0 0 0 1 1 1 1 25 0.81 0.75 1 1 0 0 1 1 1 0 0 7 0.78 0.73 1 0 0 1 0 1 1 1 0 8 0.77 0.61 1 0 1 1 1 1 1 0 0 7 0.77 0.70 1 0 0 0 0 1 0 0 0 6 0.76 0.68 1 1 0 0 0 1 0 1 0 4 0.75 0.64 1 0 1 0 0 1 1 1 0 25 0.70 0.55 1 1 0 1 0 1 1 1 0 9 0.68 0.47 1 1 1 1 1 1 1 1 0 4 0.66 0.49 1 0 0 1 1 1 0 1 0 4 0.62 0.57 1 0 0 0 0 1 1 0 0 22 0.62 0.46 1 0 1 0 0 1 1 0 0 23 0.61 0.42 1 1 1 0 0 1 1 1 0 21 0.60 0.35 1 0 1 0 0 1 0 1 0 8 0.60 0.46 1 0 1 0 0 1 0 0 0 9 0.59 0.48 1 0 1 1 1 1 1 1 0 7 0.58 0.41 1 1 0 0 0 1 1 1 0 19 0.58 0.41 1 1 1 0 0 1 0 1 0 11 0.58 0.37 1 1 1 1 0 1 1 0 0 9 0.57 0.30 1 1 1 0 0 1 1 0 0 14 0.55 0.25 1 0 0 1 0 1 1 0 0 11 0.53 0.30 1 0 1 1 0 1 1 1 0 16 0.51 0.26 1 1 1 0 0 1 0 0 0 9 0.51 0.30 1 0 1 1 0 1 0 1 0 9 0.51 0.35 1 0 0 1 0 1 0 0 0 5 0.47 0.34 1 0 0 1 1 1 1 0 0 7 0.45 0.33 1 1 0 0 0 1 1 0 0 17 0.43 0.25 1 0 1 1 0 1 1 0 0 24 0.42 0.23 1 1 1 1 0 1 0 1 0 7 0.42 0.16 1 1 0 0 0 1 0 0 0 10 0.41 0.22 1 1 1 1 0 1 1 1 0 12 0.38 0.08 1 0 1 1 0 0 0 0 0 5 0.36 0.22 1 1 1 1 0 1 0 0 0 8 0.34 0.13 1 0 1 1 0 1 0 0 0 14 0.30 0.12 1 1 1 1 0 0 0 1 0 5 0.10 0.01 1 1 1 1 0 0 0 0 0 6 0.09 0.01 Note: (1) High board independence from management. (2) High board independence from majority shareholders. (3) Absence of CEO on board. (4) Low audit fees. (5) Presence of international directors. (6) Presence of female directors. (7) High director interlocks. (8) Ideal board size. 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License PONOMAREVA ET AL. 419 T A B L E A 4 Truth table— Conditions Outcome Consistency nonconformity (1) (2) (3) (4) (5) (6) (7) (8) Nonconformity N Raw PRI 1 1 1 1 0 0 0 0 1 6 0.99 0.99 1 1 1 1 0 0 0 1 1 5 0.98 0.98 1 1 1 1 0 1 1 1 1 12 0.94 0.91 1 1 1 1 0 1 0 0 1 8 0.90 0.87 1 0 1 1 0 1 0 0 1 14 0.87 0.84 1 1 1 1 0 1 0 1 1 7 0.84 0.77 1 1 0 0 0 1 1 0 1 17 0.81 0.75 1 1 1 1 0 1 1 0 1 9 0.81 0.69 1 0 1 1 0 1 1 0 1 24 0.80 0.74 1 1 1 0 0 1 0 0 0 9 0.78 0.68 1 1 1 0 0 1 1 0 0 14 0.78 0.63 1 1 0 0 0 1 0 0 0 10 0.77 0.70 1 0 0 1 0 1 1 0 0 11 0.77 0.66 1 0 1 1 0 1 1 1 0 16 0.77 0.64 1 0 1 1 0 0 0 0 0 5 0.77 0.72 1 1 1 0 0 1 1 1 0 21 0.76 0.60 1 0 0 1 0 1 0 0 0 5 0.73 0.66 1 0 0 1 1 1 1 0 0 7 0.71 0.65 1 1 0 1 0 1 1 1 0 9 0.70 0.51 1 1 0 0 0 1 1 1 0 19 0.69 0.57 1 0 1 1 0 1 0 1 0 9 0.68 0.58 1 0 1 0 0 1 1 0 0 23 0.68 0.53 1 1 1 0 0 1 0 1 0 11 0.67 0.51 1 1 1 1 1 1 1 1 0 4 0.65 0.48 1 0 1 1 1 1 1 1 0 7 0.64 0.49 1 0 0 1 0 1 1 1 0 8 0.64 0.39 1 0 1 0 0 1 0 1 0 8 0.62 0.49 1 0 0 0 0 1 1 0 0 22 0.62 0.46 1 0 1 0 0 1 0 0 0 9 0.58 0.47 1 0 1 0 0 1 1 1 0 25 0.56 0.35 1 1 0 0 0 1 0 1 0 4 0.54 0.36 1 0 0 1 1 1 0 1 0 4 0.49 0.42 1 0 0 0 0 1 0 0 0 6 0.48 0.32 1 0 1 1 1 1 1 0 0 7 0.41 0.25 1 0 0 0 0 1 1 1 0 25 0.41 0.19 1 0 1 0 1 1 1 1 0 10 0.35 0.19 1 0 0 0 0 1 0 1 0 7 0.35 0.20 1 1 0 0 1 1 1 0 0 7 0.32 0.18 1 0 0 0 1 1 1 0 0 8 0.21 0.13 1 0 1 0 1 1 1 0 0 14 0.16 0.08 1 0 0 0 1 1 0 0 0 8 0.12 0.00 1 0 0 0 1 1 0 1 0 19 0.08 0.01 Note: (1) High board independence from management. (2) High board independence from majority shareholders. (3) Absence of CEO on board. (4) Low audit fees. (5) Presence of international directors. (6) Presence of female directors. (7) High director interlocks. (8) Ideal board size. 14678683, 2022, 4, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/corg.12408 by Readcube (Labtiva Inc.), Wiley Online Library on [14/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 420 PONOMAREVA ET AL. TABLE A5 Necessity analysis Consistency Coverage High board compensation High board independence from 0.88 0.49 management ˜High board independence from 0.23 0.68 management High board independence from 0.36 0.41 majority shareholders ˜High board independence from 0.73 0.59 majority shareholders Absence of CEO on board 0.50 0.42 ˜Absence of CEO on board 0.50 0.54 Low audit fees 0.37 0.39 ˜Low audit fees 0.73 0.62 Presence of international directors 0.37 0.69 ˜Presence of international directors 0.63 0.40 Presence of female directors 0.93a 0.50 ˜Presence of female directors 0.07 0.28 High director interlocks 0.59 0.56 ˜High director interlocks 0.50 0.47 Ideal board size 0.67 0.48 ˜Ideal board size 0.33 0.46 Low board compensation High board independence from 0.90a 0.57 management ˜High board independence from 0.19 0.64 management High board independence from 0.54 0.69 majority shareholders ˜High board independence from 0.53 0.48 majority shareholders Absence of CEO on board 0.61 0.58 ˜Absence of CEO on board 0.39 0.46 Low audit fees 0.60 0.71 ˜Low audit fees 0.48 0.46 Presence of international directors 0.15 0.31 ˜Presence of international directors 0.85 0.60 Presence of female directors 0.85 0.50 ˜Presence of female directors 0.15 0.72 High director interlocks 0.50 0.53 ˜High director interlocks 0.58 0.61 Ideal board size 0.65 0.52 ˜Ideal board size 0.35 0.54 a Necessary condition.