Increasing Board Effectiveness with the Balanced Scorecard – Theoretical Assumptions and Application in Practice

Abstract

Purpose – The purpose of this work is to analyse whether the balanced scorecard implemented at the board of directors can enhance board effectiveness in a real-life case study of two leading UK financial institutions – Barclays Plc. and HSBC Holdings Plc.

Methodology – The analysis of the underlying theories and of the balanced scorecard concept is conducted through academic literature, corporate disclosures, public surveys and financial press review. The analysis is embedded in the context of the Agency Theory, the Shareholder Prerogative, the Efficient Market Hypothesis, the Agency-Stakeholder Paradigm and the Bounded Rationality Hypothesis.

Findings – The study constructs a Board Effectiveness Framework to test Barclays’ board balanced scorecard. The results show that HSBC operates a more effective board despite having no board balanced scorecard at place. Furthermore, the historical review shows that both the companies experience severe corporate governance failure throughout the last years. It is concluded, that ethics should accompany effectiveness, whereas effectiveness does not depend on certain tools like the balanced scorecard.

Limitations – Generalising statements may not be appropriate on the basis of a case study of two entities.

Originality – The author is not aware of any Board Effectiveness Framework to test real-life scorecards against academic assumptions. The study contributes to the body of literature on the board effectiveness approach which yet has not gained as much attention as the structural approach and the regulatory approach.

Keywords: Agency Theory, Shareholder Prerogative, Agency-Stakeholder Paradigm, Bounded Rationality Hypothesis, Board Effectiveness Framework

JEL Classification: G20, G21, G32, M12, M14, M40, M49, M50, M59