Combining the CEO and board chairman role can boost new venture development in tech startups, finds new study co-authored by Chris Coleridge of Cambridge Judge Business School.
Corporate governance in the US and Britain generally separates the board chairman from the CEO, while many countries including those in Scandinavia often combine the roles. A new study co-authored by Chris Coleridge, Management Practice Associate Professor at Cambridge Judge Business School, suggests that the latter model can boost the effectiveness of tech startups.
The study published in the journal Technovation focuses on the difference between the “agency” theory of governance in Anglo-Saxon countries (which holds that managers must be monitored by an independent board) and the “stewardship” theory in countries such as Norway (which holds that managers can be trusted to act in the organisation’s best interest).
“The more profound the trust between the individual board members and the incumbent CEO, the better the intraboard behavioural integration, and the better, and more efficacious advice they can provide, the more efficacious the venturing initiative is likely to be,” the study finds.
Internal board relationships are key to venture creation
“The results imply that the ‘one person, two jobs’ situation is positive for new venture development.”
Whereas the effect of board interactions on external relationships has been extensively researched, the study looks instead on the less-studied effect of internal board relationships – which is part of a broader concept known as “internal social capital” or the overall dynamics of how people and teams interact within an organisation.
The study is based on a survey of new high-tech firms in Norway between 2015 and 2018, with an average firm age of 8.6 years and average number of employees of 11.7.
The study finds that higher levels of intraboard trust will facilitate effective decision making and better informal communication, which boosts the venturing team’s effectiveness.
CEOs are more effective when they also chair
“CEO duality will moderate the relationship between intraboard trust and the effectiveness of venturing teams, so when the CEO is also the chairperson, execution is often more effective, and the venturing team will be even more so,” the study says.
In looking at the effectiveness of the venturing team, the study looked at not only actual performance but also unrealised performance (such as foregone opportunities), “which is essential for new firms in emergence” as assessment on many traditional business measures is not useful for such young enterprises.
The study in the journal Technovation – entitled “Venture governance and its dynamics: intraboard relationships and CEO duality” – is co-authored by Truls Erikson of the University of Oslo, Chris Coleridge of Cambridge Judge Business School, and Ekaterina Bjornali of NTNU Business School, Norwegian University of Science and Technology.