The role of boards of directors in tourist organizations

This paper addresses the role of boards of directors in tourist organizations, more precisely what they do and for whom they work. These questions are important for several reasons. The boards of directors possess high authority in organizations.

There is reason to believe that an organization’s success is dependent on its board of directors. Moreover, board performance contributes to organizational performance (Forbes & Milliken, 1999). Extant research on boards of directors exists; however, there is little knowledge regarding boards of directors in tourist organizations. Regarding the actual research purpose, i.e. to investigate what boards do and whom they serve, little is known about boards in tourist organizations.

The need for elucidating how directors view the role of the board is indicated in the literature (Huse, 2007; Stiles & Taylor, 2001;

Troye, 2001; Jakobsen, 1998; Wang, 2007). When businesses join a tourist organization, and contribute with money and time, they expect to benefit. Moreover, they expect to gain more than any next-door business. If that expectation is not met, they may start to question their participation. Other businesses may benefit from the tourist organizations activities as well, which can cause frustration among the joint parties conducting the collaboration.

The remaining parts of this paper are structured as follows. The next section describes the structure of tourism and governance in Norway, to familiarize readers with the Norwegian context. This is followed by a brief review of theoretical perspectives chosen for this study: agency theory, a shareholder perspective and a stakeholder perspective. The next section reports the research underlying the empirical findings. An explorative and discovery-oriented approach was chosen to gain insight into the research questions. More precisely, in-depth focus group interviews were performed with boards of directors in selected tourist organizations. In the following section, results from those focus groups are presented. We conclude the article with a discussion, including remarks on some limitations of the study, implications for management, and future research.

Theoretical Background

Tourist organizations are set up based on the presumption that a destination will become stronger and more competitive through collaboration among the actors at the destination (Pearce, 1992). Certain functions, such as marketing, planning and development, visitor servicing, policymaking, and co-ordination, can be strengthened through a high degree of collaborative interaction (Goeldner & Ritchie, 2006; Gunn & Var, 2002; Jamal & Getz, 1995;

There are approximately 150 tourist organizations in Norway (Ministry of Trade and Industry, 2007). Each region has a choice whether or not to establish any tourist organization.

Hence, one can find a mixture of different organizational structures, goals, and functions. Tourist organizations in Norway can be based on memberships. Moreover, limited companies have become increasingly important since the Norwegian Government encouraged the tourism industry to structure their collaborations as such in the 1990s (Ministry of Trade and Industry, 1989). Many tourist organizations are publicprivate partnerships, where public authorities have a formal role, such as owning shares or being members, and occasionally being represented among the directors.

The board’s responsibility for the management of the company includes responsibility for ensuring that the activities are soundly organised, drawing up plans and budgets for the activities of the company, keeping itself informed of the company’s financial position and ensuring that its activities, accounts and asset management are subject to adequate control. The board of directors should lead the company’s strategic planning, and make decisions that form the basis for the executive management to prepare for and implement investments and structural measures. The company’s strategy should be reviewed on a regular basis.

(The Norwegian Code of Practice for Corporate Governance, 2010, p. 35)

Even if not stated explicitly in law, strategic planning is considered an important responsibility for boards, in The Norwegian Code of Practice, in common understanding, and in practice.

A legalistic perspective on boards of directors emphasizes the responsibilities established by law, as briefly outlined above. However, the legal view takes us only a small way toward understanding governance in tourist organizations. To address our research questions stated above, we draw on elements from agency theory, shareholder theory, and stakeholder theory. Agency theory is supplemented by shareholder theory, to draw attention to the relationship between directors and shareholders or members. Due to the characteristics of tourism and tourist organizations, stakeholder theory has been chosen as a complement.

Agency Perspective

Individuals often act not only in their personal interest, but also in the interests of the institution they own or work for (Beritelli et al., 2007). Hence, the directors’ external relationships were interesting. They had potential relationships to their parent organization, to specific groups, to their geographical region, and so forth. In collaborative organizations such as tourist organizations, directors may act as agents for a few, while they can be considered as principals for owners or members. This dual role causes possible tension in the boardroom, and affects how boards act as decisionmaking groups.

Shareholder Perspective

Stakeholder Perspective

At destinations, there are groups and individuals, both public and private, with distinguishable relationships to the local tourist organization, which can affect, or are affected by, the achievement of the organization’s objectives. The strategies developed by tourist organizations often set the direction and focus effort not just for the organization, but also for the destination in general. Additionally, many aspects concern and influence other stakeholders at the destinations besides owners in an organization.

Many plans are indicative of these broader stakeholders, outlining desirable goals for the organization and the appropriate actions to attain these. The organizations have to communicate their plans externally and generate willingness among others to participate in and implement chosen strategies, to be able to achieve the organization’s objectives.

The achievement of goals, e.g. an increase in visitors to an area, may have an impact on local resources and local communities. Hence, stakeholder theory apparently reflects tourism (Bramwell & Lane, 2000; Bramwell & Sharman, 1999; Buhalis, 2000; Palmer & Bejou, 1995;

Categorization of Board Roles

To guide and direct, though not dictate this research, Zahra and Pearce’s (1989) categorization of board roles underpins the analysis. Through their review and integrative model, Zahra and Pearce (1989) identified three sets of interrelated board roles: control, service, and strategy. Control includes monitoring and rewarding the manager’s actions and performance. Service includes representing the organization’s interests in the society, linking the organization with its external environment, and securing critical resources. The strategic role, understood as the level of attention given by directors to the various elements of the strategic process, affects formulation and dissemination of policies as well as the allocation of resources necessary to implement the chosen strategies.

Methodology

Sample

Boards of directors are pre-existing groups, clusters of people who already know each other through working and socializing together. We chose to use board groups as they were, instead of composing groups with a mixture of directors from different organizations.

A sample of ten organizations was invited to participate in the study. Judgment was used to try to get a sample that was representative of Norwegian tourist organizations.

Three organizations, which were part of the sample at an early stage, were later excluded due to a sudden change of management, i.e. the directors were busy replacing management, and could not spare time to participate in the study. In total 37 directors participated in seven focus groups. For the discovery-oriented purpose of this study, this was considered a sufficient number of directors and boards to increase our insight. The final sample consisted of three limited companies, three other companies with limited liability, and one association based on memberships. Table 2 reports the number of directors each board had at the time the interviews took place, and the number present during the interviews. In four groups, one or two deputies were attending.

Most organizations in this study have local politicians or government employees appointed to their board. Table 2 states whether they were present.

Data Collection Procedure

Two test-interviews gave valuable information about how the interviews ought to be structured. Minor changes were made regarding the wording and order of questions, based on the directors’ responses. The two test-interviews are part of the final sample, organization A and B.

Interviews were conducted when, and where, the boards had regular board meetings.

Placing the interview as the first item on the agenda ensured the presence of most directors, who focused on the discussions. It also reduced possible influence from other issues on the agendas. Interviews were carried out without the presence of the managers, with one exception, where the manager also was the chairperson of the board. Managers were excluded because of the risk of directors answering in a way they thought their manager expected, or the interviews were dominated by the managers’ opinions.

A semi-structured interview guide served as an information-gathering tool. The interview guide consisted of ten open-ended questions. Interviews started with background information about the study, followed by a brief presentation of each of the directors:

The sample

Table 1.

	Form of
Organization Geography	Level  organization *    Ownership     Management
A         West	Regional  Other         Partnership,  New manager in company with private       2007 limited         majority      Administrative liability                            staff
B          South	Local    Other        Partnership, New manager in company with public       2007 (50%) limited         majority liability
C           East	Local    Limited       Partnership, New manager in company      private       2007 majority
D          East	Local     Foundation, Partnership,  20% help with organization or private        administration other           majority association
E          North	Regional Limited      Partnership,  Manager company      public       Administrative majority       staff
F          Mid-Norway	Regional Limited      Private       Manager s company                  chairperson ^ principal shareholder Administrative staff
G         West	Regional Other        Partnership,  New manager in company with public       2007 limited         majority liability
H          South	Local     Foundation, Partnership,  Change of organization or public       management other           majority association
I            North	Regional Limited      Partnership, Change of company      private      management majority
J           West	Regional Limited       Partnership, Change of company      private      management majority

^* Form of organization according to the Norwegian Register of Business Enterprises, ownership, and management. Other companies with limited liability are companies other than limited companies where none of the partners has personal liability for the obligations of the company (registered in Norwegian as: samvirkeforetak og andre foretak med begrenset ansvar).

Table 2.

Composition of focus groups

Organization Members of the board Directors present during interviews (Deputies) Politicians or government employees appointed to the board A 8 10 (2) 3 B 7 7 2 C 5 5 1 D 5 3 (1) 1 E 5 4 (1) 1 F 2 2 0 G 7 6 (1) 3 Total 39 37 11 name, current position, and tenure as director. The first five questions were general, and the following five were specific to the particular board. Although the guide was followed more or less in the same order in each group, the interviews took new directions due to interactions between participants. The interviews were conducted from September to December 2007. Each interview lasted for about one hour.

Analysis Procedure

Results

This section reports the findings from our investigation, starting with findings regarding roles and responsibilities, followed by an analysis of whom the directors saw themselves working for.

Board Roles and Responsibilities

On general questions about responsibilities, we found great unanimity among directors in each board. Few phrases or expressions that revealed divergence or discontent were used by the directors. In general, it seemed as though directors were rather complementing each other rather than expressing differences of opinion. This rather general pattern is illustrated by the following quotations from the interview with six directors in organization G:

It is to plot out a line of action for our work, or the administration’s, to ensure that we have a horizon and a strategy for our work (Organization G, Director 1). We are also there to follow up on resolutions made by the annual meeting. The annual meeting plots the line of action for the year, for the board of directors is the governing body between annual meetings; those with the responsibility for the company between annual meetings, and must at least follow laws and regulations for the company, and pursue the resolutions made (Organization G, Director 2).

Yes, it has already been said. I can only agree with what has been said. In addition, it has also been to promote tourism in the region. That is my basis (Organization G, director 3). [. . .] Economy is part of the board’s responsibility. To pass a budget, or present a budget for the general meeting, pursue budgets and audit accounts. Follow up on the company’s financial estate. After all, this company has had its ups and downs. Yes, there have been challenges (Organization G, Director 4). [. . .] Obviously, it is the board’s responsibility to employ, in addition to keep the organization running. After all, it is the board’s responsibility to employ a manager and the co-workers necessary to run the company (Organization G,

Director 5). [. . .] There are by-laws for this organization, which deal with tasks for both the board and the general manager. So that, that is what. . . well, what we act according to (Organization G, Director 6).

An extensive list of responsibilities emerged from the directors answers. Analysis and thorough categorizing showed that categories derived from Zahra and Pearce (1989) were adequate and appropriate for this study. Table 3 groups responsibilities into three roles: strategy, service, and control, with frequencies for different boards. Wordings reflect both Zahra and Pearce’s (1989) work and directors’ expressions during interviews.

A to G represents the seven tourist organizations participating in the study.

Table 3 shows that boards stated several responsibilities. Moreover, some responsibilities were emphasized by most boards. First, all boards participating in this study reported that boards in tourist organizations should play a role in strategic planning.

Tasks related to strategy were mentioned at the beginning of most interviews and highly emphasized. Expressions from interviews included: “Set up longterm strategies” (Organization A), “create long-range plans” (Organization B), “plot out lines of action for the work we do, to have a horizon and a strategy for our activities” (Organization G), “set goals and plans for the future, both short-term and long-term” (Organization C) and, “create plans of action” (Organization D). Subsequently, securing critical resources was a major concern. A number of tasks mentioned during interviews were related to activities that secure financial resources and strengthen the long-term relationship to stakeholders who contribute financially. Furthermore, control of budgets, accounts, and finances was mentioned by most boards as an ongoing and important task. The use of words such as “ensure”, “see to”, “make sure”, “supervise”, and “attend to” points towards the board’s control role. This is, as shown in Table 3, closely related to economic conditions. “An issue in every board meeting will be the present financial situation, so one can monitor the development” (Organization G).

Boards in this study tell about organizations with limited means, and they were trying to keep economic conditions under strict control. Large shares of tourist organizations’ budgets are public grants and financial contributions from members or shareholders.

Relations with public authorities, and ability to keep and get shareholders and members, are essential

Table 3.

Board roles and responsibilities

	ABCDEFG
Strategy	Strategic planning                                          •   •   •   •   •   •   • Choose areas of commitment                          •   •   •   •   •   •   • Decision-making                                         •   •   •   •   •   •   •
Service	Securing critical resources • • • • • • • - Making major bene fi ts visual • • • • • • • - Taking care of the interests of shareholders /members • • • • • • • - Increasing number of shareholders /members • • • • • • • Representing the organization’s interests in the society • • • • • • • Linking the organization with its external environment • • • • • • • Giving advice to management and administration • • • • • • • Daily running of operation.s.. • • • • • • • ...in times of crises • • • • • • •
Control	•      •      •      •      •      •      • Monitoring managerial activities, performance and      •   •   •   •   •   •   • decisions Monitoring activities, performance and decisions        •   •   •   •   •   •   • Controlling budgets, accounts and present fi nancial     •   •   •   •   •   •   • conditions Ensuring that activities are in accordance with laws and •   •   •   •   •   •   • regulations Finding and hiring a manager                            •   •   •   •   •   •   •

for the financial long-term situation. Consequently, boards were preoccupied with finding means, and call attention to the benefits of supporting the organization. It is difficult to show how promotion, marketing, visitor services, and other such activities are linked to an increase in visitors, guest nights, and value creation.

Many activities described can be classified as lobbying. Directors attend to the interests of current shareholders or members to ensure they stay in the organization. In addition, they try to increase the number of members. Some boards actively took part in recruitment. Two boards, A and B, had arranged separate committees for this purpose.

Relations with important external stakeholders, such as public authorities, were highlighted.

“We hold different competences and diverse networks which imply that we shall contribute and establish contacts on behalf of the company. . .” (Organization A). Boards in this study have directors who represent the organization’s interests when dealing with third parties, and they link the organization with its external environment.

Some examples: A director from organization E was appointed to the board in a tourist organization at a higher geographical level. The board in Organization G consists of public representatives from each municipality in the area, and chairpersons from four local tourism associations, a structure that ensures a network between organizations at different geographical levels and links to important external stakeholders.

Control of managerial actions and performance were given little attention in the interviews, although agency theory highlights the internal agency problem, and considers monitoring management activities as the boards’ main task. Control of previous decisions and the organization’s performance were mentioned. Additionally, some directors pointed to boards’ responsibility for controlling whether activities were done in accordance with laws and regulations, bylaws and statutes. Even so, only one director from a limited company referred to directors’ responsibilities as set forth in the Companies Act.

Large turnover seems to be common in tourist organizations. Finding – and keeping – the right manager was a chief concern for boards in this study. The fact that three of the invited boards had to cancel underlines this. Directors had to hire managers, and meanwhile do the extra work required to keep the organization running. Four of the remaining boards had also recently changed management. As illustrated in the following quotes, selecting and hiring a manager is challenging. “The appointment of a new tourism manager. It was a long and time-consuming process and a very important decision. And during that process we did not have a manager” (Organization A). “It becomes more work in detail than necessary. Much more work for the board than required” (Organization B). Directors, and particularly the chairperson, had to attend to the extra work lack of management entailed. “Different boards are needed in different periods” (Organization A).

The level of attention given to tasks varies among the seven boards participating. In order to capture the board’s actual involvement, boards were asked to elaborate on how they pursued specific responsibilities. Thorough questions revealed that in reality limited time was spent on responsibilities first emphasized as significant. In addition, all boards were asked about the most important and the most difficult issues on the agenda the present year. Moreover, they were asked why these issues were important and difficult. Answers to these questions reflected largely what tasks the directors had been focusing on, and how much emphasis was given to certain responsibilities.

The issue most boards highlighted as important, difficult, and time-consuming was the organization’s financial state.

There is a divergence between what directors first state as important responsibilities, and the tasks they actually give time and attention to. This was particularly true for strategic planning. In general, boards did not participate in the actual development of policies, but merely approved and ratified suggestions presented by management.

Organization A stands out on the topic of strategy. Directors considered strategy and long-term planning as key tasks. Strategies were set in annual seminars where they also drew attention to allocation of resources necessary to implement chosen strategies.

“It may be opportune to discuss the company’s economy and income strategically in the long term” (Organization A). The directors expressed great awareness of governance, referred directly to the Companies Act, and made clear distinctions between managerial responsibilities and their own role. “Implementation is her [manager’s] responsibility” and “. . .a board should not be in charge of the daily running” (Organization A). Organization A is the largest in the sample with regard to budget, shares, staff, and number of directors.

In our presentation of findings in Table 3, two other organizations stand out, with fewer responsi- bilities. Organization D is a small, local association run without a hired management. The directors, and especially the chairperson, have an executive function. “. . .We are a small organization. In this organization, the directors also execute plans. We do have the traditional tasks, such as budget and accounts and so forth, but we also have a much more executive function” (Organization D). Included in their responsibilities are daily running of operations and planning and organizing social events, such as kick-offs and meetings. Organization D has limited means.

However, the directors give less emphasis to financial resources and seem to be satisfied with their budget. “If we take stock of the situation, I think this is a reasonable level to operate at” (Organization D).

We hold a short meeting, take the decision and are up and running in a couple of days instead of waiting for the next board meeting to be held in five weeks, and going through aimless discussions that may well not lead to anything. So, we run a business that can jump on possibilities – for better or worse. If boards are not up to date, they can have a restrictive effect on the organization. [. . .] We are effective and not bureaucratic. We can put things into effect very fast, and that is a major advantage. (Organization F, chairperson)

By choosing to hold a minimum board primarily to meet legal requirements, they lost a potential knowledge network of directors with competence, knowledge, and skills they and the organization might have benefitted from. Even so, the directors emphasize their informal governance style and ability to make flexible decisions as key factors for their success.

For Whom Boards of Directors Work

This section reported findings on how different directors perceived whom they work for. Directors from all boards promptly said they work for their members, shareholders, or owners. However, a key finding in this study was the prevailing view many directors expressed: they do not work solely for the organization’s owners. The interviews revealed that a traditional shareholder perspective, which regards the organization as an instrument for shareholders, was present, yet too limited in the context of tourist organizations. Relations to other stakeholders and a broader stakeholder perspective occur simultaneously. Based on the analysis of the interview transcripts, we identified several additional stakeholder groups: the community, municipality or region, inhabitants, tourists or guests visiting the area, the local tourism industry or industry in general, a specific line of business or groups directors frequently interact with, managers and administration, their own business, or themselves. This is shown in Table 4 with a selection of quotes from the organizations.

Most boards in this study had at least one publicly employed or elected director.

When considering background, a particular tendency for public directors was the tendency to bring up local community or people living in the region. “. . .to create activity

Discussion and Conclusion

Central findings from our study reported above reveal that boards in tourist organizations have to deal with a spectrum of views regarding roles and responsibilities, and different perceptions of who directors work for are present simultaneously. A shareholder perspective is too limited in this context, since roles and responsibilities mentioned by directors in this study go beyond legally mandated responsibilities, and many directors expressed that they consider themselves working for others besides solely the organization’s owners. A stakeholder perspective captures these aspects of tourist organizations. In addition, a potential agency problem can occur due to the prevailing view some directors have of representing specific groups, a limited geographical area, a special line of business, and so forth. Directors can act as agents for a few, although their formal role as directors is supposed to be on behalf of owners or members. This study borrows from three theoretical perspectives: agency, shareholder, and stakeholder theory. The use of multiple perspectives has contributed to the study and helped us identify these important aspects of our findings.

Table 4

For whom directors see themselves working

The responsibilities found in this study are in line with Zahra and Pearce’s categorization of board roles (1989). There appears to be a gap between what were considered important responsibilities, and the level of attention given to specific tasks. Strategic planning was considered a key task, though the actual board involvement in planning was rather low. Control of budgets and accounts, and long-term financial conditions, on the other hand, were points on every agenda. Such current and time-consuming activities might weaken the directors’ ability to attend to other responsibilities. Boards have limited capacity, and this brings up the issue of how to prioritize. It is reasonable to believe that directors will have to pursue some responsibilities at the expense of others, and thus, the balance between roles has considerable importance.

As confirmed by this study, boards of directors in tourist organizations are diverse groups. Besides diversity in educational, functional, and occupational background, different judgments, viewpoints, ideas and opinions were present. Diversity in organizational groups, such as boards, may have multiple effects on groups’ performance and may affect outcomes (Milliken & Martins, 1996). On the one hand, diverse groups increase the opportunity for creativity, and such groups have the potential to consider a greater range of perspectives. On the other hand, diversity appears to be a double-edged sword, because the greater the amount of diversity in a group, the less integrated the group is likely to be. The compositions of board groups in this study reflect the importance of linking the organization with various parts of the external environment, particularly those that affect finances, such as public authorities. Board composition becomes a way of managing stakeholders (Sautter & Leisen, 1999), and coordinating groups or individuals who can affect, or are affected by the organization (Freeman, 1984). Multiple stakeholders with various perceptions can easily cause tension and influence how boards function as decision-making groups. It can be challenging to manage a group of directors, each of whom experience a contractual relationship with, or represent the interests of, different stakeholders groups. This fracturing of interests also raises concern about the interests of those groups not represented. Hence, the nomination of candidates who have the required experience and knowledge, networks and ability to govern plays a decisive role, and board composition and diversity are important when studying the governance of tourist organizations. Free riders are well known in the context of tourist organizations (Farstad et al., 2001; Jakobsen, 1998; Wang, 2007). When talking about responsibilities, an important task for many boards was to demonstrate specific benefits for shareholders or members.

On the other hand, a number of directors stated that the board and organization work for the region, municipality, or community in general. This dual view creates a certain risk of divergence in the organization’s perspective, between a shareholder and stakeholder perspective. Boards were challenged on this during interviews, and they seemed to be aware of the dilemma. “When a prominent person is honored, his subordinate will also benefit” (Organization A, and Organization B). Even so, in general, they had difficulties explaining in exact terms how they differentiated between these competing interests.

The ongoing challenges many organizations face regarding funding and resources can lead to the risk that directors adjust objectives and activities in line with important stakeholders’ interests, possibly at the expense of activities beneficial for the majority.

“The municipalities have their interests, the special interest organizations have their interests, and the hotels, who count for 35% of our income, have their interests. To look after the interests of each group is very important” (Organization A).

Our findings also have other managerial implications. To create a proper balance between different roles and responsibilities, formal instructions regarding the structure and behavior of boards can guide directors in their performance of duties, and make directors more conscious of who they work for – a question the whole organization ought to agree on. A formal governance style, with reliance on a prescribed system of rules or some form of legal intervention, is assumed to increase the effectiveness of collaborations (Palmer, 1998). A formal code of conduct adopted by the board and agreed to by all directors decreases the likelihood that interpersonal issues and individual performance deficits will interfere (Lathrop, 2005). Current general codes can be adapted by boards in tourist organizations. However, codes are devised for many purposes and by various actors, and the content varies. The nature of tourist organization’s environment and possible effects of contextual factors should be taken into account (Palmer &Be-jou, 1995;

Long-term funding and stable resources are critical for tourist organizations’ sustainability.

Continuous resource allocation can influence directors’ capacity to pursue other important tasks, and limit the possibility for long-term planning. Scarce financial resources can cause difficult working conditions for both directors and executive managers, with a large turnover as a possible consequence. How to finance tourist organizations and their activities has been an ongoing discussion in Norway. A number of different models have been tested in different areas, without reaching an optimal general solution (Jakobsen, 1998). Pearce (1992) and Jacobsen et al. (1996) found that successful tourist organizations are not too small, get support from local businesses, and serve a distinct and definable tourism industry in its operating area.

These criteria for success are closely related to economic and stable resources, though whether they are possible to influence varies with the circumstances. Larger organizations seem to have more stable access to resources, e.g. organization A in this study. It is possible, and advisable, to influence the size of tourist organizations, regarding owners, budget, and staff. This is a policy in line with the national strategies for tourism in Norway (Ministry of Trade and Industry, 2007), and should be supported by local tourist organizations. A distinct and definable tourism industry in an area with support from local businesses may entail strong commitment among collaborators; yet, an area’s industrial structure is harder to change.

Conducting group interviews with boards in tourist organizations proved useful for this explorative study. It provided the actual social context where ideas are formed and decisions made. However, such qualitative research has its shortcomings, which limits the extent to which it can be generalized. For example, there may be great divergence between what directors express during interviews and the actions boards of directors actually undertake. The level of agreement among the directors during the interviews indicated to a certain degree this phenomenon. They reacted and built upon responses from other board members, related each other’s comments to actual incidents in their shared history, and challenged each other on contradictions regarding how they earlier actually behaved in similar situations. Another risk present in focus group interviews is possible group thinking (Byers &Wilcox, 1991;