engleski

Relationship Between the Supervisory Board Efficiency and Stakeholder Orientation: Do Stakeholders Matter?

Although the motivation for the establishment of the Supervisory Board in the continental system of corporate governance is primarily related to the improvement of the process of control over the management, the Supervisory Board in its work assumes multiple roles: control, strategic and service or resource provision. The control role of the Supervisory Board consists of a range of activities and mechanisms by which the board protects the interests of shareholders and other stakeholders. The role of the Supervisory Board is not exhausted in supervision. Except the control function, the board assumes a broader, more inclusive role. This is primarily related to the advisory role of the board and the role of improving and enhancing the discussion on strategic issues. The service or resource provision role of the Supervisory Board is primarily concerned with maintaining the formal and informal relationships with firm’s stakeholders. The Supervisory Board can help the firm connect with the relevant segments and environmental constituencies and in securing important resources. The Supervisory Board is expected to take into account the relevant interests of other stakeholders, especially employees, creditors, customers, suppliers and the local community, and in performing its duties should apply essential social standards and environmental protection principles. A Supervisory Board with a strong service or resource provision role can help better articulate the interests and overcome the inherent conflict between the various stakeholders. With that respect, a stakeholder orientation of a firm is determined by the degree of understanding the interests, needs, demands and expectations of stakeholders and the level of participation of relevant stakeholders in shaping the firms’ goals and strategy. In this paper we examine the relationship between the Supervisory Board efficiency and the degree to which the interests of stakeholders are promoted and protected by the decisions and actions of the Supervisory Board as well as the representation of stakeholders in the Supervisory Board, as measures of a firm’s stakeholder orientation. We have empirically tested the relationship on a sample of Croatian nonfinancial listed companies using primary data obtained by a survey. In order to operationalize the efficiency of the Supervisory Board we have constructed an index of the supervisory board efficiency as a composite measure consisting of five key areas. Results of our research show that there is a positive relationship between the Supervisory Board efficiency and the measures of firms’ stakeholder orientation. Just having representatives of key stakeholders in the Supervisory Board is not sufficient. The higher degree of promoting and protecting the interests of stakeholders by the decisions and actions of the Supervisory Board positively affects its efficiency.

supervisory board; stakeholder interests; board efficiency; board roles

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