During the COVID-19 pandemic, we were all confronted with a new model of holding virtual meetings. We struggled with the limitations of such meetings, while at the same time, we also saw some of the opportunities these meetings might have. Professor of International Finance Niels Hermes, together with Dennis Veltrop (Associate professor of Corporate Governance at FEB) and Trond Randøy (Copenhagen Business School), decided to study the consequences such meetings may have for meetings of boards of large companies and the quality of their decision making. In this blog, he shares their findings and discusses what they might mean for the future of board meetings and decision-making processes.

Randøy, Veltrop and Hermes analysed the impact of holding online board meetings on board decision-making processes. Hermes explains: “Due to the COVID-19 pandemic, which started in March 2020, virtual board meetings became the standard, as social distancing laws restricted the assembly of even small groups such as boards. We investigated how the overnight change from physical to virtual board meetings has affected how boards work. In particular, we analysed how board inputs, board processes, and board outputs have changed due to the virtual setting of board meetings.”

 Frequent shorter meetings, less interaction

The researchers conducted interviews with directors and chairs of Norwegian, Swedish and Dutch companies. These interviews provided in-depth information about how their board work changed due to the virtual setting in which they held their meetings since March 2020. The authors found that on average board meetings had become shorter and the number of meetings had increased. The quality of discussions was reduced as there was less interaction and critical input from individual directors. “We also discovered that, while their work with respect to monitoring largely remained the same, the contributions of individual board members to strategic decision-making especially came under pressure’’, Hermes adds.

Based on these observations from the interviews, the researchers theorize on why having virtual board meetings has a different impact on directors’ monitoring as compared to their making contributions to strategic decision-making. This is an important question, also after the COVID-19 pandemic, as many boards still in part meet online. Hermes: “This radical shift towards virtual board meetings not only helps us understand the impact virtual board meetings have on the effectiveness with which different board roles are performed, it also improves our understanding of how boards operate in a physical setting. The importance of informal interactions during breaks, for instance, became clear only because many board members realized what actually happens during these breaks at the coffee machine or in the hallway when they were deprived of them. With the COVID-19 pandemic behind us and with boards now returning to physical meetings, we understand more fully how interaction patterns during and outside board meetings shape board decision making.”

Meeting online not only negative

The researchers’ interviews made it clear that the forced change to an online world had not only been negative. In fact, some interviewees also mentioned positive outcomes, such as lower travel costs and time investment, the ease of setting up meetings, the fact that meetings were shorter and more to the point, etcetera. Hermes: “Thus, a mix of online and on-site meetings seems to be a potentially interesting new model of holding board meetings. Based on our framework, some board tasks may work well while other tasks are much more difficult in a virtual context. For example, compromises are often made during informal conversations outside the official board meetings. Yet, small talk is difficult to organize in a virtual environment. Informal conversations also appear to be instrumental in building trust within the board, which is another potentially important input for productive discussions about strategy.” The researchers observed that a virtual meeting has generally less room for dialogue and interaction, and it is more difficult to facilitate diverging views.

Looking to the future

The authors’ theoretical framework may help boards decide how to change their meeting and decision-making practices and make their work more efficient and effective. Boards are at the top of organizations to make sure decisions are taken in the interest of stakeholders as they have ultimate decision power over organizational actions. They therefore represent an important determinant of organization-level actions. This also means that it is important to answer questions such as how they decide.  Hermes: “Our research on the costs and benefits of online meetings may contribute to answering such questions. Since online meetings seem to have become the new norm, it is important to know how this may impact the quality of decision making at the top of organizations. It may also help to improve online meetings quality and what is needed to improve on online decision making.”

The research is work in progress. Hermes: “As a next step, we will send a survey to a large sample of board members to ask for their experiences with virtual board meetings after the COVID-19 pandemic. Most boards have kept at least part of their meetings online. The survey allows us to dig deeper in the costs and benefits of holding online meetings with respect to decision making processes and board effectiveness.”

Want to know more about board effectiveness?

Niels Hermes is also one of the coordinators of the summer school ‘Corporate governance and the effectiveness of boards’, which is held at the University of Groningen yearly in July. Participants of the summer school learn how to critically evaluate governance research, how to apply theories, research methodologies and findings from such research to help identify research topics in an area that has become a focal point for regulation and reform around the world. The focus of the discussions during the summer school will be on boards and their effectiveness in determining organizational decisions and outcomes. This year’s edition of the summer school will take place 10 - 14 July 2023.

Questions about the research or the summer school? Please contact Niels Hermes.