Board socio-cognitive decision making and task performance under heightened expectations of accountability

Research on corporate governance reforms has focused on whether the reforms accomplish their stated objectives while paying little attention to whether forms bring unintended consequences. This study explores the unintended consequences of governance reforms that were instituted to address corporate malfeasance and agency issues. We use social cognitive theory to explain how reforms put pressure on board members to increase their monitoring roles, affecting their socio-psychological decision-making processes, and ultimately leading to process losses that affect board performance. Using data from 117 directors who served on their boards both before and after Sarbanes-Oxley, we find support for a partial mediation model linking board-level reactions to regulatory reforms, through cohesiveness, to board performance. Increased perceived authority and increased affective conflict are seen to contribute to lower board cohesiveness and task performance. Our findings suggest that board effectiveness may be challenged by the unintended consequences of corporate governance reforms.