Corporate Governance & Organization Life Cycle: The Changing Role ...

of poison pill tactics was more likely among firms with board interlocks to other firms that had previously adopted poison pill tactics. His article touched on two important issues: change of control and ownership structure. Indeed, the board of directors “is the ultimate center of control…The control…is exercised frequently through the ability to hire and fire the chief executive officer…” (Mizruchi, 1983, p. 433).

Second, the advising function of the board came into prominence through analysis of the impact of changes in ownership and board composition on strategic change (Goodstein & Boeker, 1991). A more recent study posited that strategic change is affected by board demography and board processes (Golden & Zajac, 2001; Rutherford & Buchholtz, 2007).

Finally, resource dependence theorists emphasized the institutional or interfacing function of the board structure. Increasing board size and diversity becomes a way to link the organization to its external environment, to secure critical resources and to build prestige and legitimacy (Pfeffer, 1972, 1973). By the same token however, “as boards increase in size and diversity to fulfill their institutional and governance functions, they may not be ideally suited to taking timely strategic actions in response to critical environmental changes” (Goodstein, Gautam, & Boeker, 1994, p. 242).

The aforementioned issues are illustrated in figure 1.

More recently, the corporate world has witnessed renewed interest in the monitoring function of the board. The recession of the early 2000s⁴and the occurrence of major scandals have contributed to this. Grave concerns about the state of corporate governance have been raised frequently in the media, questioning CEO compensation, as well as the independence of the board and its responsibility to shareholders. Enron, Tyco, Hollinger, Nortel, and Parmalat are among the firms that have faced criticism on governance issues. A common thread has been the perceived failure of the board to fulfill its fiduciary duty with regard to its control and supervision obligation. At this stage, it has been difficult to assess the long-term effect of efforts to avoid future scandals through regulatory reforms (Finegold, Benson, & Hecht, 2007), but it has been