The influence of the legal/institutional environment on board of director composition and structure

This research looks at the impact of the legal/institutional environment on the composition and structure of the board of directors. In particular, this study considered the influence of the adoption of other constituency statutes on corporate boards. These statutes redefine the responsibility of corporate directors to shareholders and other stakeholders. Other constituency statutes break with the previous legal tradition that boards are responsible primarily to shareholders and permit the board to consider the impact of other stakeholders in board decision making.;Using legal environment theory (Edelman, 1990; 1992) a theoretical rationale was provided which identified how the adoption of other constituency statutes may create change in the composition and committee structure of corporate boards, in those states which have adopted the statutes. Specifically, organizations in states with other constituency statutes were predicted to become more stakeholder representative in response to the laws. Data was gathered on the board characteristics of 227 companies for the period from one year prior to the adoption of the laws to three years post law.;Results showed little support for the impact of these laws on changes in board composition and committee structure. The only significant hypothesized difference was in the likelihood of companies in the other constituency statute legal environment adding a stakeholder director. However, companies in each of the legal environments differed significantly on their stakeholder representation prior to the adoption of the statutes. The implications arising from this study indicate that in addition to organizations responding to changes in their legal/institutional environments, research must also consider that organizations create changes in their environments in addition to responding to changes (Scott, 1995).