This study investigated the effects of board members’ characteristics (educational level and functional background) on firms’ strategic decision-making processes and ultimately on firms’ innovation. Based on the Upper Echelons Theory and the strategic choice perspective several hypotheses have been developed and were examined in a sample of Greek listed firms that allow us to open the ‘black box’ and develop a new understanding of the factors that facilitate the adoption and implementation of strategic innovation choices which contributes to the strategic management literature.
One key contribution is that this study provides innovative insights the effects of managerial characteristics directly on context decisions (strategic decision-making processes of financial reporting and rule formalization) and indirectly on content decisions (innovation). The CEOs’ level of education up to bachelor’s degree was found to be associated with both financial reporting and rule formalization. The effects of these demographic characteristics have been diminished when we added the mediator in the model and regressed all of them against innovation. When all the variables were regressed against innovation, it is found that functional background of general management is related to innovation, indicating that CEOs with expertise in the management field have been proactive in pursuing innovation strategies.
The main contribution of the study is that we enhance the strategic management research and Upper Echelons Theory with new empirical evidence that the strategic decision-making process variables of financial reporting and rule formalization act as mediators between boards of directors’ characteristics and firms’ innovation. The study confirms the mediating effect of strategic decision-making processes on innovation and, to a lesser extent, the effect of managerial characteristics on innovation.
The findings have also provided us with strong evidence that the internal strategic decision-making processes adopted by Greek listed firms are the key determinants of innovation. The majority of Greek companies have previously lacked strong financial and technological resources and have been characterized by autocratic methods, ‘passivity’ in marketing, and limited use of modern management tools to support strategic decisions (Bourantas and Papadakis, 1996; Makridakis et al., 1997). However, the situation in Greece changed dramatically after its integration into the European Union. This new institutional environment exerted strong pressures towards modernization and the improvement of competitiveness on both macro and microeconomics fronts (Kazakos, 2001), so Greek organizations have tended to adopt various innovative strategies in order to compete with more advanced economies and to play an increasing decision-making role in the economies of neighboring Balkan countries.