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CONCLUSION

A recent analysis of the best and worst boards of directors ranked Walt Disney Co. as one of the worst because the board was "too cozy" and had too many insiders (Business Week, Nov. 25, 1996, pp. 82-106). The ranking, based in part on an assessment of the composition, structure and guidelines of the board, prompted Michael Eisner, chairman and chief executive of Walt Disney Co., to complain that modern theory about what constitutes effective governance is off base: " 'I didn't go to business school, so I didn't have the benefit of two years of intensive training in this area...but what I read about what is expected I find quite counterintuitive.' " (Feb. 24, 1997, p. A1), Eisner contended that a board should be judged by how well the company does, not by how the board is structured.

While Eisner's comment may have been motivated by self-interest, his assessment largely reflects the state of scholarship on boards of directors. Very little academic work has been devoted to how venture boards function or should function. What has been done has relied almost exclusively on the same approaches taken to large firm governance. However, these approaches have been limited in what they reveal about how well boards accomplish avowed purposes. In this investigation, we set out to develop a framework to examine the decision processes in boards by integrating a theoretical perspective that addresses structural issues and a perspective that addresses process issues. We feel the resulting framework is a promising step toward understanding what leads to more effective and efficient decision making in boards of new ventures.

We developed a framework by our integration of agency and organizational justice theories and the analysis of in-depth interview data. The general logic of our integrated model is that the interactions between board members functions to build or undermine interpersonal trust. Because trust involves beliefs about an individual's willingness to act in a manner that is mutually beneficial, it mitigates the impact of agency conditions that suggest a threat of opportunism. Thus, through its effect on trust, prior interactions mitigate or exacerbate the impact of agency risks in future decision making.

Applying the integrated model, we developed a series of propositions concerning the specific aspects of the decision-making process. We identified three aspects of board decision making that may influence the effectiveness and efficiency of decision making: the focus of board meeting discussion, the strength of controversy, and the mode of decision making. Our model suggests that each of these aspects is affected by the threat of opportunism, either due to information asymmetry or goal conflict, such that timely, high-quality decisions are more difficult to achieve when these problems exist. Our model further suggests that the extent to which prior decision making was conducted fairly will mitigate the impact of agency risk in these circumstances.

If our propositions hold true, this integrated model may have important practical and theoretical implications. On a theoretical level, the model provides insight into how board members approach risk and how social relationships can facilitate the management of agency risks. However, our perspective goes beyond merely advising board members to trust each other, but specifies what behavior engender trust. On a practical level, this understanding can be quite valuable. As our model suggests, boards may have greater difficulty making decisions as a unit when faced with high agency risks. However, the types of agency risk we noted--for example, goal conflict over valuation--are common and arguably unavoidable at certain points in the life of the venture. Our model provides specific behavioral prescriptions for how to manage relationships so that these risks do not impede the effective functioning of the board.

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