Why have an Active Board of Directors? : A Quantitative Study of SMEs

Abstract: In Sweden all limited liability companies are required to have a board of directors. The board of directors’ task is to manage the business of the firm, but in recent years boards have been subjected to critical review in the media, questioning the tasks and structure of the board. Further, there are differences in the regulations regarding limited liability companies, depending on whether they are private or public companies. Moreover, a majority of the research within the area of corporate governance has been conducted on public companies. However, corporate governance in small and medium sized enterprises (SME) has in the last 30 years become a field of interest. Several scholars and doctorates have used different board roles to explain e.g. the tasks, demographics, and financial performance. The board roles are mainly derived from the agency-, resource dependence-, and stewardship theory. Many papers have come to the conclusion that a board of directors who performs their task, and/or have a certain board demography is beneficial to the firm. Hence, the board and its activity is of importance, however, a general image is conveyed that boards in SMEs rarely are active, but rather are seen as a necessary mean in order to have a firm. Due to this, the research question in this thesis is: What motivates small and medium sized firms to have an active board and are boards in Norr- and Västerbotten active? The criteria for having an active board has been derived from antecedent research and are further recommendations from StyrelseAkademien. Three different board roles have been used with the purpose of explaining the motivation behind having an active board. Further, this thesis has had a quantitative method, and in order to gather data a survey was sent out to board members in Norr- and Västerbotten. The results show that the motivation behind having an active board cannot be explained through the roles network and service of the board. The control role could partly explain the motivation behind having an active board of directors in SMEs in Norr- and Västerbotten, having a negative relationship to board activity. Moreover, due to the opposing results in terms of whether or not boards are active, an unambiguous answer could not be found. However, 49.1 percent of the sample is considered to be active. Lastly, the finding support that in order to have an active board, the firm must recognize a need to include outside directors.