Frontiers of Entrepreneurship Research
1997 Edition


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Karen A. Bantel

University of Michigan Business School
Ann Arbor, MI 48109-1234

Telephone: 313-936-3920 or 930-0539
FAX: 313-936-0282 or 930-0531

Principal Topics

The role of the top management team in promoting the strategic success of large, established firms is well-documented. Their criticality is more extreme in the case of entrepreneurial firms in which the skills, experiences, insight, and energy of the founding team have a very large impact on firm survival, growth, and performance. Similarly, the role of the board of directors for entrepreneurial firms is particularly critical, as board members often represent key knowledge, perspective, and contacts; resource constraints often limit the ability of the fledgling firm to hire such talent, yet gain access through board membership. Drawing from a variety of studies, the impact of the top management team and the board of directors in creating growth and strong financial performance for entrepreneurial firms is explored. Specifically analyzed are the top management team's composition and decision making process, and the board's composition and decision making authority.


A stratified-random sample of 160 key informants, or decision leaders of manufacturing SMEs in Northern Mexico was examined, representing a response rate of 40 percent of the sampling frame of 400 key informants.  The study utilized an on-site structured interview methodology, in which the interviewer presented the key informant with a survey questionnaire, answered questions (within a prescribed research protocol), collected, dated, and coded the questionnaires.   The data were collected at three sites representing manufacturing activity in Northern Mexico: Ciudad Juarez, Ciudad Chihuahua, and Monterrey.  A survey questionnaire was first designed to test informants' attitudes, opinions, behaviors, and characteristics regarding strategic alliances, a well as cultural determinants, with alliance success as a dependent measure.

This study is a part of the Kauffman Foundation Entrepreneurial Best Practices research project, conducted in affiliation with Ernst & Young and Fortune magazine. A subset of the data was selected to focus on those firms in the sample that are technology-based. A sample of 78 firms, representing 31 SIC codes, was selected. Independent variables consisted of five top team composition and three process variables, and five board composition and seven decision authority variables. Six performance measures (a two year average for each) were analyzed: net worth, net sales, profit (after tax), ROS, ROI, and ROA. In addition, two growth measures, change in net sales and net worth (over two years), were also evaluated.

Major Findings

Preliminary exploratory analyses indicate the strongest linkages between the board of directors, both composition and authority, and a variety of performance outcomes. On board composition, two variables the total number of directors and the total number of non-family outside directors were significantly related to net worth, net sales, and profit. With regard to board decision making authority, assistance from board members in the development of the business plan was positively linked with net worth, net sales, and profit. Unexpectedly, a negative association was found between two performance measures net worth and net sales, and three areas of board decision making authority approval of capital expenditures, review of CEO's performance, and setting compensation benchmarks.


This study confirms the key role played by the board of directors for technology-based, entrepreneurial firms. These firms benefit substantially from the breadth of experience and perspective represented by various board members. This background is particularly helpful in relation to developing a business plan that apparently creates a meaningful roadmap for the management and direction of the firm. On the other hand, if the board oversteps the bounds of providing assistance and perspective, into the domain of "hands-on" management decision making, firm performance suffers. These results will be of interest to several key constituencies of such entrepreneurial firms, constituencies often represented on the board, including management, venture capitalists, bankers, lawyers, and accountants

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