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Corporate Governance: An International Review, 2013, 21(2): 127–130
Commentary
Inducing Frame-Breaking Insights through
Qualitative Research
Pratima Bansal*
T he emperor has no clothes. The emperor here is corpo-
rate governance and the clothes are agency theory.
Much corporate governance research continues to be
informed by agency theory, even though the empirical evi-
dence supporting agency theory is, at best, equivocal (Daily,
Dalton, & Cannella, 2003). Agency theory asserts that prin-
cipals (owners) must monitor and control agents (managers)
to protect the owners’ residual claims from the excesses of
self-interested agents. Despite the widespread challenges
directed at the very foundations of agency theory, research-
ers continue to apply it to corporate governance research.
So, why does agency theory continue to dominate corporate
governance research?
The reason, I argue, is because corporate governance relies
heavily on hypothetico-deductive quantitative research,
which fuels path-dependent theorizing. My intention is not
to rail against agency theory; I believe agency theory has its
place in corporate governance. But agency theory’s strong
roots in economics and finance have contributed to deduc-
tive theorizing, which favors building new theory based
on old. This path dependent theorizing has likely narrowed
the field of vision. Agency theory has a place in corporate
governance research, but not to the exclusion of alternative
theories. Corporate governance researchers who rely solely
on agency theory are missing the opportunity to find the
emperor new clothes.
Good theorizing within a system of knowledge often
arises from a balance between deductive and inductive
research. Inductive research generates new theory that is
extended and tested through deductive theorizing. Once
deductive theorizing reaches its empirical boundaries, new
theory is induced from data that stretches the empirical con-
texts. This circular flow between inductive and deductive
theorizing builds a robust system of knowledge that can
explain corporate governance in ever-broadening empirical
contexts.
*Address for correspondence: Pratima Bansal, Richard Ivey School of Business, Uni-
versity of Western Ontario, London, N6A 3K7, Canada. E-mail: tbansal@ivey.uwo.ca
© 2012 Blackwell Publishing Ltd
doi:10.1111/j.1467-8683.2012.00930.x
The present knowledge system in corporate governance
is, however, out of balance: there is too much deductive
theorizing and too little inductive. I receive all macro-
qualitative manuscripts in my current role as the Associate
Editor at the Academy of Management Journal. Of the more
than 110 new submissions I have handled, I recall only
two that addressed corporate governance. Some fields of
research, e.g., institutional theory, elicit considerable quali-
tative attention. Corporate governance, on the other hand,
tilts heavily in the quantitative direction, which is surprising
given the equivocality of the evidence in support of its most
favored theory – agency theory.
WHAT IS QUALITATIVE RESEARCH?
To advance my argument, it is important to describe quali-
tative research and how it differs from a quantitative
approach. Qualitative research is based on textual data,
drawn from researchers’ observations, interviews, analyses
of archival manuscripts, and other similar sources. Such data
often provide rich accounts of the phenomena (Weick,
2007). These data are textured, nuanced, and elicit three-
dimensional mental images. Textual data are open to mul-
tiple interpretations, so multiple connections can be made to
a single data point. For example, a CEO’s title might evoke
connections to such concepts as power, greed, and control, or,
alternatively, to leader and benevolence. These connections
then allow researchers to draw patterns within and between
data fields, in order to identify new constructs and the
relationships between those constructs. The ambiguity in
the meanings of words also opens up the opportunities to
re-interpret data either over time or across researchers,
yielding new understandings of the constructs and their
relationships.
Yet, text-based qualitative data also have limitations. The
ambiguity in the meanings of words defies commensura-
tion, making it difficult to reduce qualitative data. Further-
more, qualitative researchers prefer understanding a single
phenomenon deeply, rather than collecting numerous obser-
128
vations over many units of analysis. Therefore, the patterns
seen in the data are contextually bound, requiring research-
ers to conceptualize the boundary conditions for the emerg-
ing theory.
Quantitative data, on the other hand, can be commensu-
rated, and therefore, manipulated. A very large amount of
information can be reduced to a single number and, thereby,
powerful insights can be revealed across many data points.
For example, Boyd (1995) found that CEOs filled the dual
role of Chair and CEO in 46 percent of the 192 firms in his
sample. He also found that duality was positively related to
firm performance in environments that were highly munifi-
cent (characterized by high industry sales) and complex
(characterized by many fragmented firms). These findings
can provide insights into the effectiveness of CEO/Chair
duality, which can help shape corporate policy. Because
quantitative data can be collected across many observations,
the efficacy of proposed relationships can be tested in ways
not possible with qualitative data.
Yet, quantitative research also has limitations. Not all con-
structs can be easily defined or measured (e.g., judgment,
trust). Quantitative researchers, therefore, often assume
the construct’s definition and the factors that comprise it,
and must use proxies to measure the construct (e.g., high
industry sales as a proxy for industry munificence). Further-
more, relationships often cannot be tested directly, so the
causality must be inferred through more distal relation-
ships (CEO duality → ineffective governance → firm perfor-
mance). Quantitative research, therefore, sometimes casts
the illusion of objectivity and certainty.
The differences between qualitative and quantitative
research, however, extend well beyond data characteristics.
The more significant differences relate to theorizing. Quali-
tative research induces new theory, i.e., new relationships,
through its rich text-based data. Good inductive work, then,
starts with an empirical anomaly or puzzle that cannot
be explained by existing theory. The researcher dives deep
into studying a phenomenon to illuminate the basis of the
theory–phenomena misfit, which then motivates new theory.
Quantitative data, on the other hand, permits researchers
to test the generalizability and contextual boundaries of the
hypothesized relationships. Quantitative research, therefore,
is more suited to deductive theorizing, which is anchored in
prior theory and assumptions. New theory is developed, not
from the data, but by patching together prior theories and
observations, by relaxing assumptions, and by acknowledg-
ing contingencies.
Qualitative and quantitative work, therefore, form a
complementary partnership. Qualitative work generates new
ideas that can be tested by quantitative work. Where hypoth-
esized relationships are empirically unsupported, qualitative
work can reveal new insights. Where new theory grounded
in data is untested, quantitative work can determine its effi-
cacy and generalizability. Both qualitative and quantitative
research build theory, and both connect to prior theory and
new data; but quantitative theorizing is anchored in prior
theory, whereas qualitative theorizing is anchored in data.
Nowhere is this complementary relationship between
inductive and deductive theorizing better exhibited than
in well-executed, multi-method studies. For example, Park,
Westphal, and Stern (2011) surveyed CEOs of 1,350 randomly
Volume 21 Number 2 March 2013
CORPORATE GOVERNANCE
selected firms, then followed up by interviewing 23 top
managers and directors. The researchers used the interviews
to understand the role of flattery and ingratiation on CEO
judgment and behavior, and to refine the measure of
ingratiation. They used the survey to test the relationship
between flattery and ingratiation, including its impact on firm
performance.
THE OPPORTUNITIES OFFERED
BY QUALITATIVE RESEARCH IN
CORPORATE GOVERNANCE
Because of researchers’ heavy reliance on quantitative data,
qualitative data offer considerable opportunity to inform
corporate governance research. In this section, I argue that
qualitative data can inform corporate governance research
in three ways: by exposing new questions, by challenging
existing assumptions, and by identifying new variables.
First, qualitative research can expose new questions because it
is grounded in the phenomena. If prior theory is incomplete
or inaccurate, patterns in the data can reveal new questions.
Given that most corporate governance research is animated
by agency theory, the research questions have largely been
directed at the appropriate contracts that ensure adequate
monitoring and control (e.g., compensation systems) and the
appropriate structure of the board of directors (e.g., CEO/
Chair duality, or the appointment of independent directors).
But an agency perspective may blind researchers to other
potentially important questions. For example, Main, Jackson,
Pymm, and Wright (2008) question the extent to which
agency theory can explain the practices of remuneration
committees. Based on interviews with 22 directors that sit on
a total of 68 boards, the researchers point to institutional
processes rather than agency problems. They believe that the
salient questions are not if or how CEOs are paid, but rather
how the processes within remuneration committees result in
the legitimacy and imitation in remuneration packages.
Second, qualitative research can challenge existing assump-
tions. Inductive theorizing is grounded in data, so researchers
are not shackled to the assumptions of prior research. Once
insights into the data are gained, the researcher identifies
prior theory that can anchor and frame the data (Suddaby,
2006). This process often raises inconsistencies between
what the data reveal and what prior theory has claimed.
Agency theory, for example, assumes asymmetric informa-
tion, opportunism, and incongruent goals. These assump-
tions have contributed to a body of research that prescribes
the separation of CEO and Chair and the preference for
independent outside directors over insiders. Yet, the empiri-
cal support for the relationship between these attributes
and firm performance remains equivocal (Daily et al., 2003).
Qualitative researchers have used this empirical ambivalence
as a point of departure from the assumptions that ground
agency theory. Kwee, Van Den Bosch, and Volberda (2011),
for example, identified two different corporate governance
orientations in their historical analysis of Royal Dutch Shell.
The Anglo-Saxon orientation mirrored the agency model in
its use of a one-tier board composed of inside and outside
directors, aimed at controlling managers. The Rhine model,
on the other hand, comprised a two-tier board, in which the
© 2012 Blackwell Publishing Ltd
INSIGHTS THROUGH QUALITATIVE RESEARCH
executive board included inside directors, and the supervi-
sory board included only outsiders. The Rhine model oper-
ated in a system in which agency assumptions did not hold;
executives were not assumed to be exclusively self-interested
above all else, and managers evaluated a wide set of perfor-
mance measures, including employee satisfaction.
Third, qualitative research can identify new constructs
that reveal new insights into old problems. Much effort in
deductive quantitative work is directed toward validating
constructs and tightening the statistical analysis to ensure
confidence in the tests of the hypotheses. Most quantitative
research therefore relies heavily on already amassed data
because of the image of quality they cast. Consequently, new
constructs and relationships are difficult to observe because
researchers are searching for their keys under the proverbial
lamppost. Qualitative research, in contrast, aims to find new
places to shine light, often in areas obscured from view. For
example, my research has shown that executives’ time per-
spective is critical in shaping their decisions. Executives
who have a future perspective tend to incorporate more
information in their decision making than executives who
are focused more in the present (Slawinski & Bansal, forth-
coming). My research has uncovered several time-related
variables that are salient in decision making, including the
age of CEOs, their tenure, and the patience of the firm’s
equity capital. Yet, the role of time has been largely ignored
in current theorizing in corporate governance.
FINDING FRAME-BREAKING
THEORETICAL INSIGHTS IN
CORPORATE GOVERNANCE
Many researchers hold the mistaken belief that qualitative
research should be applied only where no prior theory
exists. In fact, qualitative research is also suited to areas
where there exists strong theory, but inconsistent empirical
support for the hypothesized relationships because, as I
claim, qualitative research can challenge assumptions and
surface new constructs. In such conditions, however, quali-
tative data must be drawn from unconventional cases and
contexts, explore unique data, investigate processes, and
unpack multi-level relationships. I describe these conditions
further below.
Sample Unconventional Cases and Contexts
Building theory where no prior theory exists should be
based on typical contexts. However, to challenge existing
theory requires drawing from unconventional contexts. Such
contexts stimulate double-loop learning, which can surface
surprising patterns that can often be extended to the conven-
tional contexts (Bamberger & Pratt, 2010). Most corporate
governance data are drawn from US-based, publicly traded,
large firms. Unconventional contexts can spark new ideas,
thereby contributing to generalizable theory. Nicholson
and Kiel (2007) drew their sample from both for-profit and
non-profit firms and found that executives’ goals, even in
for-profit firms, included non-financial outcomes, such as
government relationships, member satisfaction, and meeting
mission objectives. This broader view of performance was
© 2012 Blackwell Publishing Ltd
129
instrumental in pointing the researchers toward the use of
stewardship theory and resource-dependence theory in
addition to agency theory, in explaining the relationship
between corporate governance and organizational outcomes.
Explore Unique Data Sources
Whereas quantitative data sources are limited because
equivalent data must be available across numerous observa-
tions (e.g., financial performance is most commonly drawn
from annual financial statements and stock prices), qualita-
tive data can be much more diverse. Most qualitative
researchers draw heavily from interviews with managers and
directors and from archival data. Kwee et al. (2011), for
example, used interviews, corporate documents, and indus-
try publications to construct a rich history of Royal Dutch
Shell. Their historical analysis resulted in a construction of
Royal Dutch history that extended from 1907 to 2004. Rouleau
and Balogun (2011) analyzed the managers’ narratives in
describing work–life stories during periods of organizational
restructuring.
Investigate Processes
Quantitative data favor studies of variance, in which the
relationships between variables are assessed. Qualitative data
are not well suited for variance studies because it is difficult
to assess the sensitivity of changes in variables because of
the few comparable data points. However, qualitative data is
often suited to investigating processes, where connections
are made between observations, events, and activities over
time (Langley, 2007). These process maps can explain why
and how outcomes occur, thereby informing variance-based
theory and potentially debunking spurious correlations.
I was unable to find any examples of process studies from
an agency theory perspective, which points to an important
opportunity for future research. For example, a process
study of CEO decision making could help to demonstrate
how opportunism, goal conflict, and information asymme-
try shape CEO attention and decisions. Such a study may
also expose new variables that are salient to CEO decision
making yet are difficult to measure and not often considered
in agency theory, such as power dynamics, social processes,
and individual biases. Such a study, for example, may show
that managerial opportunism is more a reflection of execu-
tive myopia and a focus on proximate outcomes than a result
of self-interest with guile.
Unpack Multi-Level Analysis
Statistical methods place a straitjacket around quantitative
theorizing. These methods require unbiased sampling,
numerous observations, valid constructs, and assumptions
about the underlying data structure. In contrast, qualitative
data analysis offers considerably more latitude. Conse-
quently, qualitative data analysis is more relevant to exploring
relationships between different levels of analysis, a perspec-
tive that has been relatively absent in quantitative work in
corporate governance (Dalton & Dalton, 2011), despite the
importance of cross-level analysis (organizational, team, and
individual) to corporate governance research.
Volume 21 Number 2 March 2013
130
THE EMPEROR’S CLOTHES:
SEEING CORPORATE GOVERNANCE
THROUGH NEW LENSES
A 2012 issue of the Journal of Management Studies features a
colorful point–counterpoint discussion. On the one side of
the debate, Wiseman, Cuevas-Rodríguez, and Gomez-Mejia
(2012) argue that the criticism of agency theory is misplaced.
The lack of empirical support for its predictions is not a
reflection of poor theory, but of poor theorizing. Researchers
need to more carefully integrate the institutional context
into their theorizing. By doing so, they will naturally adjust
context-specific variables, such as opportunism, into agency
theory. Wiseman et al. are strong proponents of agency
theory because, when properly applied, it is parsimonious
and relevant to so many contexts. The researchers are,
conversely, critical of inductive theorizing because of its
inability to generalize across contexts. Heracleous and Lan
(2012), however, argue that inductive theorizing is needed
for agency theory because it can challenge the fundamental
assumptions of agency theory and raises such questions as
who should be the principal, who should be the agent, and
what is the status of the board.
I find myself agreeing with both sides, recognizing the
value of agency theory in explaining aspects of corporate
governance. But my battle is not with agency theory; it
is with the dogmatic adherence to one style of data and
theorizing, whether qualitative or quantitative. I am a strong
proponent of paradigmatic and theoretical plurality. Both
approaches to theorizing are important to build a robust
system of knowledge.
Imagine describing a CEO’s professional life using only
numbers. We could describe the number of years in the
profession, the money made, the hours worked, the number
of colleagues, the board interlocks, and even the level of
job satisfaction. But the qualitative description brings the
description of the CEO’s profession to life. We can describe
daily activities, reactions to board decisions, the attention
given to issues, the information used in decisions, and even
information ignored in decisions. Qualitative data give the
numbers robust meaning.
Agency theory has anchored corporate governance for
many decades, and much of the analysis has been grounded
in deductive quantitative analysis. Despite the wide accep-
tance of agency theory, there is increasing discomfort in its
application to corporate governance. It is time to find the
emperor new clothes through inductive theorizing based on
qualitative data.
ACKNOWLEDGEMENTS
I would like to thank Brent McKnight, Claus Rerup, and
Jean-Philippe Vergne for their helpful comments on prior
drafts of this manuscript.
Volume 21 Number 2 March 2013
CORPORATE GOVERNANCE
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Pratima Bansal is a Professor at the Ivey School of Business,
at Western University in Canada. She is an Associate Editor
at the Academy of Management Journal, handling all macro
qualitative manuscripts. Her research is anchored in busi-
ness sustainability, to which she applies both qualitative and
quantitative methods. She is currently searching for new
clothes for the emperor.
© 2012 Blackwell Publishing Ltd