1 Accounting Research Centre - ARC, Aarhus School of Business, Aarhus BSS, Aarhus University2 Department of Business Studies, Aarhus School of Business, Aarhus BSS, Aarhus University3 Department of Economics and Business Economics, Aarhus BSS, Aarhus University4 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
Some company leaders decide that their companies should differentiate themselves from others even though the regulatory establishments such as the European Union and IASB are making elaborate efforts to emphasise comparability and the need for harmonisation of reporting behaviour and governance structures. Under the harmonization regime, decisions to differentiate become strategic in nature and will be placed in the hands of the (supervisory) board. The purpose of our study is to examine the influence of competency and background of supervisory board members on decisions to differentiate in reporting and governance structure. Our contribution to existing knowledge about optimal board compositions is provision of explanations for ability and willingness to make certain critical corporate decisions. In order to identify such explanations, we choose to make an explorative study of the corporate governance codes' general recommendations for board member competencies which can be classified as related to internationalisation, professional background and diversity. We examine four specific instances of observed differentiation behaviour, i.e. two instances of disclosure behaviour: Voluntary IFRS implementation and high level of CG disclosure and two instances involving choice of governance structure: the abandonment of joint audit (change from two to one auditor) and the choice to use audit committee as part of the company governance structure. Our study is based on collected financial and corporate governance data for 100 listed Danish companies for 2004-2005. Across these four differentiation decisions we find varying support for the three recommended types of competencies of board members. We find that IFRS implementation is related to board competency indicated by having foreigner board members on the supervisory board (internationalisation effect), while the other reporting decision (the choice of high corporate governance disclosure level) is related to board competency of all the three types identified in the corporate governance codes, i.e., internationalisation effect, professional background in accounting/finance and gender diversity. We find that governance structure involving the abandonment of joint audits is unrelated to competency measures. Finally we find that differentiation by introducing audit committees is mostly related to the internationalisation effect.