The Fat Cats and the Big Wigs: Investigating Executive Boards

By StudyLink

Professor Amon Chizema, Loughborough University

On the Loughborough MBA, we like to ask the big questions and keep you up to date with the latest research. One question we posed recently was: How do  corporate governance structures in China affect executive pay and if so how does this affect company performance?
Professor Amon Chizema – an expert on comparative international corporate governance in European, African and Asian organisations – gives his insights, based on his recent research…
Often, when we compare governance structures and specifically boards, we tend to focus on the UK and the US, which are quite similar, and compare them with trends in other countries, especially Japan and Germany.

The Chinese experience

We wanted to look at China because unlike in the West it is very difficult to separate corporate governance from political institutions, so we’re studying political directors in firms. China is fascinating because it’s got state-owned enterprises – and it’s actually these that are driving the growth in China, not the private companies. It’s very exciting to see a different approach to corporate governance coupled with business success.
In a recently (peer reviewed) research paper published in Strategic Management Journal, my colleagues and I investigated politically connected boards in China, where the non-executive board members are/were politicians or government officials, and looked at what their role and influence is in determining executive pay for their company. Our argument is that these sorts of politically connected non-executive board members represent the interests of the state, which traditionally in China could mean an egalitarian approach to pay.

Egalitarian executive pay doesn’t prevent business success

I’ve already mentioned that in China it’s the state-owned companies rather than privately owned companies that are driving economic growth. From our research, in instances where there are more political directors on a board, we identified 3 really interesting findings:

  1. Executive pay doesn’t go up very much, or is sometimes lower than companies with boards that don’t have politically connected members. This is possibly because their ideological interest is to further the interest of the state, and the Chinese state is all about equality.
  2. The pay gap between the top and bottom earners at the firm is smaller than where boards have fewer or no political directors.
  3. Unlike in the US and UK, good performance doesn’t necessarily result in higher pay – as long as political directors are there in big numbers the pay remains low. So again the issue of egalitarian approach is actually very common there.

Amon Chizema is Professor of International Business and Strategy and is Head of Discipline, International Business, Strategy and Innovation at Loughborough University. He can be reached on a.chizema@lboro.ac.uk
As a Top-10 UK business school among just 1% of business schools in the world to hold AACSB, EQUIS and AMBA accreditation, teaching on the Loughborough MBA is informed by the very latest research insights and best practice.
For more research insights from the Loughborough MBA, you can sign up to receive our twitter feeds and e-newsletter.
See how you could accelerate your career with our 1 year Full-Time MBA and our 2-year Full-Time MBA with Internship.
Loughborough University

The latest articles on StudyLink

StudyLink recommends

Sign Up to StudyLink

Sign up to StudyLink, the home of quality study abroad advice.

Click Here to Sign Up Now
  • Receive the StudyLink News newsletter
  • Save your favourite courses to build a shortlist
  • Be the first to find out about exciting new study opportunities

Join Our Newsletter

×

Sign up to StudyLink.com today for free and be the first to hear about any new study abroad opportunities

Subscribe Now