CONFERENCE PAPERS

165

What is the Impact of Corporate
Governance on Organisational
Performance?*
Loizos Heracleous**
Research on the importance of generally accepted ``best practices'' in corporate governance has generally failed to find convincing connections between these practices and organisational performance. We discuss research outcomes on the relationship between two such
``best practices'' (CEO/Chair duality and insider/outsider composition) and organisational performance, and find this relationship to be insignificant. We propose four possibilities for this tenuous relationship, that are not mutually exclusive: firstly, the possibility that ``best practices'' in governance are indeed irrelevant to organisational performance; secondly, that the operationalisation of theoretical concepts has low face validity; thirdly, that studies are too narrow, aiming to relate board attributes directly to organisational performance and ignoring other systemic factors; and lastly, the possibility that different types of organisations require different practices in corporate governance. Lastly, we address the methodological and substantive implications of each of these possibilities.
Keywords: Corporate governance, best practices, performance, research methodology

T

he legal formation of limited liability companies in the UK in the eighteenth century has separated ownership from control of corporations (Fama and Jensen, 1983), where salaried managers ideally serve to safeguard and grow the investment of the shareholders, who are the legal owners of the business. The well-documented tendency of managers to often engage in excessive ``on the job consumption'' and wasteful empire building, however, at the expense of the owners' assets and the business itself, has necessitated the institution of monitoring mechanisms, of which the board of