DIRECTOR CAPABILITIES, INFORMATION PROCESSING DEMANDS AND BOARD EFFECTIVENESS.
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Boards of directors are integral to the modern corporation and therefore frequently studied. However, recent corporate scandals as well as mixed empirical findings about the impact of board structure highlight the fact that there is still much to learn. The purpose of this study is to incorporate the concept of board-level capabilities into research on corporate governance by proposing and developing the construct of director capabilities. Drawing upon a range of theoretical perspectives including human capital, information processing, and learning, we argue that, in order to understand board effectiveness, corporate governance research must go beyond its traditional focus on structural independence to also include directors' capabilities to monitor and participate in strategic decision making. Specifically, we argue that directors are able to contribute more effectively to the extent that they possess greater amounts of human capital, and that their ability to contribute is likely to be lowered by greater information processing demands posed by their home companies. We test our hypotheses using archival data on 650 firms randomly sampled from the Fortune 1000 over the years 2000 through 2003, which resulted in a unique data set on the human capital characteristics of more than 5700 corporate directors. By providing evidence in support of our hypotheses, this paper expands our understanding of the antecedents of board effectiveness.
