The possible pitfalls of boards’ engagement in the strategic management process

Scholars endorsing the embeddedness outlook call for directors’ greater engagement in the strategic management process. In contrast, scholars endorsing the control outlook argue that directors should focus on fulfilling their fiduciary duty of supervising top executives. Based on the behavioral-agency theory, this paper outlines a conduct outlook on boards. Recognizing the benefits of directors’ participation in the strategic management process, we hypothesize that it may boost directors’ satisfaction with firm’s performance, strategic planning, and strategy. This could lead to cognitive entrenchment and spur inertial tendencies. Structural equations modeling analysis of the data from a survey of 367 Canadian directors supports the hypotheses. These findings add knowledge to latest research on the advantages vs. disadvantages of activist boards.