The cost of conformity to good governance: Board design and compensation

Research question/issue: Albeit the fact that the “one-size-fits-all” corporate governance model has been mostly discarded, the debate on what constitutes a well-governed firm has converged toward a set of practices that comprise what we refer to as the global good governance norm. Whereas extant research has focused mainly on the benefits of good governance, we build on neo-institutional theory to explore how firm conformity or nonconformity to this global norm is associated with the cost of board governance, captured as board compensation. Research findings/insights: Using a fuzzy set qualitative comparative analysis (fsQCA) of firms listed in the Stockholm Stock Exchange, we find that the configurations of board practices conforming to the global good governance norm are associated with higher board compensation than those that score low on conformity. Based on our findings, we deduce four archetypical board design strategies jointly shaped by two central forces: the pressure toward conformity to the good governance norm and the extent of governance discretion, denoting firm agentic behavior. Theoretical/academic implications: First, our study highlights that conformity to the global good governance norm is accompanied with higher costs than nonconformity. Second, while most of the extant research discusses conformity and agentic behavior as two opposing forces, we uncover that they simultaneously co-exist in board governance, stressing their interconnectedness. Practitioner/policy implications: Conformity to the global good governance norm influences the strategic choices of board designs and the costs associated with such choices.