The Influence of Top Management Team's Corporate Governance Orientation on Strategic Renewal Trajectories: A Longitudinal Analysis of Royal Dutch Shell plc, 1907–2004

Theory and Dimensions of Strategic Renewal

Broadly defined, strategic renewal relates to ‘the activities a firm undertakes to alter its path dependence’ (Volberda et al., 2001a, p. 160) to achieve a fit between the firm and its environment (Lamberg et al., 2008; Miller, 1992). More recently, Agarwal and Helfat (2009, p. 282) propose that strategic renewal ‘includes the process, content, and outcome of refreshment or replacement of attributes of an organization that have the potential to substantially affect its long-term prospects’.

Key aspects of the definitions of strategic renewal relate to patterns that emerge over a long period of time resulting from strategic actions that a firm undertakes towards path dependence or path creation (Garud and Karnøe, 2001; Garud et al., 2010). While path dependence is associated with exploitation, path creation is associated with exploration (March, 1991). Like organizational ambidexterity, strategic renewal requires both exploiting existing competencies and exploring new ones (Gibson and Birkinshaw, 2004; Jansen et al., 2009; March, 1991). In this line of inquiry, we study exploitation and exploration by identifying and analysing realized strategic renewal actions rather than perceived or planned actions (Mintzberg, 1978; Mintzberg and Waters, 1985). This is consistent with Volberda et al. (2001a) who investigated strategic renewal trajectories based on realized strategic renewal actions.

Like other recent studies of a firm's exploitation and exploration actions (e.g. Uotila et al., 2009), we build upon the studies of Volberda et al. (2001b) and Flier et al. (2003) by investigating strategic renewal as a three-dimensional construct, consisting of content, context and process dimensions. The exploitation and exploration constructs are related to the content dimension of strategic renewal. Exploratory strategic renewal actions, indicating initiatives for long-term strategic renewal, are actions such as starting up new business; launching new products/services, technologies and activities; and entering new markets or new geographic regions (Cao et al., in press; He and Wong, 2004; Lubatkin et al., 2006; Uotila et al., 2009). Such actions add new activities to the current repertoire of the organization's range of activities and competencies or increase the geographic scope of the firm. In this respect, exploratory strategic renewal actions create a new path or alter existing paths and are considered to be relatively radical or discontinuous strategic transformations (Agarwal and Helfat, 2009; March, 1991). Exploitative strategic renewal actions, however, denote a shorter-term orientation and consist of actions that focus on the current range of activities within the current geographic scope of a firm. For instance, exploitative actions include expanding existing markets, improving existing competencies, and initiating rationalized activities such as closure, consolidation, or downscoping (Cao et al., in press; He and Wong, 2004; Lubatkin et al., 2006; Uotila et al., 2009). In this respect, exploitative strategic renewal actions are path-dependent and associated with incremental renewal (Agarwal and Helfat, 2009; March, 1991).

The context dimension of strategic renewal reflects the interaction of a firm with its external environment when initiating strategic renewal actions. Do firms originate strategic renewal actions based on their internal resources or based on external resources and cooperation with external parties? Here we query the internal- versus external-growth strategic renewal trajectories (Capron and Mitchell, 2009; Flier et al., 2003; Galunic and Eisenhardt, 1996). Examples of external-growth strategic renewal actions include mergers, acquisitions, and joint ventures. Internal-growth strategic renewal actions include internal corporate venturing, launching new products or new services, and closing product lines or offices.

Finally, the process dimension deals with the temporal processes of strategic renewal actions and includes the speed and volatility of strategic renewal actions (Flier et al., 2003). In this respect, a longitudinal research design of sufficient duration is required to provide process explanations of strategic renewal trajectories (Chakravarthy and Doz, 1992; Pettigrew, 1990).

Top Management as Organizational Antecedent of Strategic Renewal

Recent studies (e.g. Eggers and Kaplan, 2009; Tripsas, 2009) show that the question of how top management teams of large incumbent firms manage their strategic renewal is central to both strategy and organizational fields. As mediators between external environmental demands and internal organizational dynamics (Keck and Tushman, 1993), top managers are considered to have latitude of action in making strategic choices (Hambrick, 2007). Upper echelons literature has emphasized the role of top managers in strategy formation and the resulting organizational outcomes (Hambrick, 2007; Hambrick and Mason, 1984). For example, by engaging in external and internal advice-seeking, top management teams (TMTs) are able to signal internal and external environmental developments and to influence strategic renewal actions (Alexiev et al., in press). At its core, the upper echelons literature is based on the premise that top managers' compositional and background characteristics, such as nationality (e.g. Hambrick et al., 1998) and functional background (e.g. Carpenter, 2002; Hambrick et al., 1996), determine their orientation in making strategic choices. Research in this stream focuses either on CEO- or TMT-level characteristics. Scholars who focus on TMTs rather than CEOs argue that it is the combined capacity of the members of TMTs that influences long-term success (Carpenter et al., 2004). However, the interaction between CEO and TMT is also widely recognized as important (Peterson et al., 2003). TMTs of large incumbent firms are often not created from scratch, but evolve over time through replacement of members (Shen and Cannella, 2002). New chairmen may appoint new members which, in turn, may change the shared context and norms of interaction of a TMT (Chatman and Flynn, 2001; Harrison et al., 2002). Therefore, in this paper, we incorporate both TMT- (i.e. Shell's CMD members) and CEO-level (i.e. the chairman of the CMD) characteristics.

An important feature of the upper echelons theory is that strategic renewal trajectories are viewed as reflections of the values and cognitive bases of powerful actors in the organization. The mix of backgrounds and expertise represented in TMTs relate to their propensity to pursue certain strategic renewal trajectories. Hambrick and Mason (1984) argue that managers with differing histories of functional experiences are likely to differ in their attitudes, knowledge, and perspectives. Furthermore, Floyd and Lane (2000) describe strategic renewal as an intensely social process, involving certain crucial interactions among top management. They contend that given the importance of social interactions between an organization (through its managers) and its environment, strategic renewal ‘can be understood best as a system of relational or social exchanges’ (Floyd and Lane, 2000, p. 160).

Top managers need to use their social skills in and around their firms in order to pursue a strategy effectively. The expectations from society and the values of the managers' socioeconomic roots may influence their perspectives on how their firms should be governed, which strategies they should pursue, and how their performance should be evaluated. Methods of such evaluation vary according to the national systems of corporate governance, i.e. the systems of corporate ownership and control (La Porta et al., 1997, 1998; Moerland, 1995).

Two types of corporate governance orientation can be distinguished: market-oriented systems and network-oriented systems (Moerland, 1995). Market-oriented systems are characterized by the so-called Anglo-Saxon model which is prevalent in countries like the United States, the United Kingdom, Canada, and Australia. Network-oriented systems are characterized by the continental European models consisting of the Rhine and Latin models (Albert, 1993; Letza et al., 2004; Moerland, 1995; Smith, 2003). The Rhine model is prevalent in Germanic countries of continental Europe such as Germany, The Netherlands, Switzerland, and Austria; while the Latin model is prevalent in Latinic countries of the European Community such as Italy, Spain, France, and Belgium (Moerland, 1995). In this paper, we focus on the Anglo-Saxon and the Rhine models considering that during the period 1959–2004, these two models were prevalent in Shell's CMD structure as an Anglo-Dutch firm operating under English and Dutch law.

These two corporate governance models tend to prioritize key issues differently. The Anglo-Saxon model is characterized by a one-tier board comprised of both executives and non-executives. Controlling shareholders appoint directors, executives, and non-executives (Moerland, 1995). The short-termism of the Anglo-Saxon model directs the board to focus on shareholder value through dynamic market orientation and a fluid capital investment system (Lazonick and O'Sullivan, 2000; O'Sullivan, 2000). Such attributes are related to the common law system, majoritarian electoral system, and a liberal market economy that tend to offer strong investor/shareholder protection but less strong employment protection (Bebchuk and Roe, 1999; Hall and Gingerich, 2009; La Porta et al., 1997, 1998; Pagano and Volpin, 2005). Moerland (1995, p. 29) points out the danger of the Anglo-Saxon short-termism that ‘managers may bother so much about presenting favourable financial results in the short run that they overlook the importance of basic investments to sustain the firm's performance in the long run’. This short-termism may influence managers to neglect long-term investments (Stein, 1988). In this model, financial performance indicators are mainly based on property or other tangible assets rather than firm-specific intangible assets such as employee knowledge.

By contrast, the Rhine model is characterized by a two-tier board structure consisting of an executive board and a supervisory board (Maassen and Bosch, 2002; Moerland, 1995). The executive board consists of the top-level management team, while the supervisory board comprises outside non-executives, such as bankers, executives from other corporations (e.g. interlocking directorship), and employee representatives. Boards operating under this model are expected to focus on stakeholder value in the context of a dedicated capital investment system. The Rhine model adopts the civil law system, proportional electoral system, and a coordinated market economy that tends to offer strong employment protection and less strong shareholder protection compared to the Anglo-Saxon model (Bebchuk and Roe, 1999; Hall and Gingerich, 2009; La Porta et al., 1997, 1998; Pagano and Volpin, 2005). Unlike the short-termism of the Anglo-Saxon model, the Rhine model is associated with a more long-term orientation (Albert, 1995; Freeman, 1984). Besides tangible assets, Rhine managers tend to use intangible assets such as employee knowledge to gauge firm performance. Table I summarizes the main differences between these two models.

In an international setting, corporate governance varies among countries with respect to their historical origins, their methods of capital mobilization, and their structures of ownership and control (La Porta et al., 1997; Moerland, 1995). Those varying institutional settings raise a number of interesting questions concerning the relationships between institutional differences and corporate behaviour, like strategic renewal and firm performance (Pugliese et al., 2009).

During the period investigated (1907–2004), Shell had two parent companies: Royal Dutch (RD) and Shell Transport and Trading (STT). Legally, the company was embedded in two countries: The Netherlands (associated with the Rhine model), and the UK (associated with the Anglo-Saxon model). Prior to the firm's unification in 2005, Shell had no American-style CEO (Sluyterman, 2007). The unique leadership structure of Shell can be distinguished in two periods: the period before the introduction of Committee of Managing Directors (CMD) (i.e. 1907–58), and the period from the start of the CMD until the unification (i.e. 1959–2004).

A Brief Overview of Shell's History and Management Structure, 1907–2004

Royal Dutch Shell plc was formed in 1907 after a well-documented Anglo-Dutch alliance between the UK-based ‘Shell’ Transport and Trading Company plc and The Netherlands-based Royal Dutch Petroleum Company (Howarth, 1998; Jonker and Van Zanden, 2007). Instead of forming one company with one set of shareholders, the Royal Dutch/Shell Group was established as a joint venture between two companies and two groups of shareholders. The Royal Dutch Petroleum Company (RD), based in The Hague and listed on the Dutch stock exchange, owned a 60 per cent interest in the Group. Shell Transport and Trading plc (STT), headquartered in London and listed on the London stock exchange, owned a 40 per cent interest in the Group.

In the period 1907–58, preceding the introduction of the CMD governance structure, RD and STT were legally two separate companies with separate boards, operating under Dutch and English law, respectively (Howarth and Jonker, 2007; Jonker and Van Zanden, 2007). Under Dutch law, RD had a two-tier structure with both a supervisory board and a management board, consistent with the Rhine model. Operating under the British corporate system, STT had a unitary board with a non-executive chairman, a majority of non-executives, and a minority of executives, consistent with the Anglo-Saxon model. During this period, both RD and STT had their own leaders: the president of the management board of RD and the chairman of the board of STT, respectively. Due to the World War II, in particular during 1941–46, no president of RD was appointed. Instead, managing directors were in charge of RD. Note that the separate management boards make it difficult to investigate the influence of a ‘collective’ board on Shell's strategic renewal trajectories during this period. Therefore, we test our research hypotheses only for the period 1959–2004, when Shell's joint Committee of Managing Directors (CMD) was in existence.

In 1959, Shell introduced the CMD governance structure. This was due to a profound reorganization initiated by RD president, John Hugo Loudon, who approached an external consultant in July 1957 to review the firm's management structure (Howarth and Jonker, 2007). The review was presented in August 1958 and led to a remodelling of the organization introduced on 15 January 1959 (Howarth and Jonker, 2007). That reorganization profoundly changed both the positions of the top managers and the relations between Shell and its operating companies (Howarth and Jonker, 2007). Although both RD and STT maintained their own president/chairman and boards, the CMD acted as a joint top management team drawn from both RD and STT. The chairman of the CMD could either be the president of the management board of RD or the chairman of the board of STT. The division in time between Dutch and British leadership more or less reflected the 60–40 per cent shares in the Group (Sluyterman, 2007). Nevertheless, the proportion of the CMD members from RD and from STT varied over time. Table II lists Shell's CMD chairmen from 1959 to 2004 with their background characteristics.

During the 1980s and 1990s, when competition intensified and the environment changed, Shell stepped back from its diversified and decentralized strategy (Sluyterman, 2007). For example, in 1997, the Shell Oil Company in the USA was integrated into the group. In 2004, Shell's reputation suffered from the overestimation of oil reserves (Cummins and Beasant, 2005). Ultimately, this major event and other internal disturbances led to the unification of Shell. At two shareholder meetings on 28 June 2005, a large majority of shareholders voted for the unification proposal of Royal Dutch and Shell Transport. Incorporated in England and Wales, and headquartered in The Netherlands (The Hague), Royal Dutch Shell plc was born (Sluyterman, 2007). Following the incorporation of Royal Dutch Shell plc in 2005, Shell merged the Group's dual-ownership structure (Sluyterman, 2007). Under this new structure, the CMD structure was abolished and the company now operates with a unitary board and the leadership of a CEO.

Data Collection and Coding Technique

Our data was collected from Shell's public sources comprising the annual reports of the board and company documents chronicling the history of Shell, publications on the history of Shell, industry publications, and other written materials from the period 1907–2004. In addition to the archival data collection, we conducted a series of retrospective interviews from December 2006 to December 2007 with 16 active senior and top managers of Shell from different divisions and with four retired top managers. The longest tenure of the top managers we interviewed is around 40 years, enabling us to obtain qualitative historical evidence about the early years of the CMD structure in the 1960s. The duration of the interviews ranges from one hour to two hours. All interviews were taped and were then transcribed, resulting in 118 double-spaced pages of text. We used the insights from these interviews, in addition to records from secondary data sources, to triangulate our initial coding.

We employed a structured content analysis technique (Jauch et al., 1980; Weber, 1990) to code Shell's strategic renewal actions reported in the company's annual reports. According to Kimberley and Miles (1980), historical records of actions actually taken by an organization are often the most accurate source of their strategic decisions. To analyse the content of strategic renewal actions, we developed a manual describing key coding rules (see Appendix). The manual provides a systematic procedure to analyse strategic renewal actions of Shell and to consistently categorize each of the relevant strategic action based on the defined coding rules. To perform this procedure, we electronically scanned 4594 pages of Shell's annual reports. We cross-checked a random subset of the reported strategic renewal actions with external sources such as books, journals, and other publicly accessible documents.

The coding was performed by a team of three researchers. Researcher 1 read and coded strategic renewal actions in the annual reports for the whole period of study (1907–2004). Using the same coding manual, two other researchers, respectively, coded 20 years of the annual reports, divided in two periods, i.e. 1976–85 and 1995–2004. The coders coded realized strategic renewal actions and categorized each action into two (content and context) dimensions: exploration versus exploitation and external versus internal growth action (see Table III). The three coders agreed on 439 of the 491 strategic renewal actions (89.4 per cent) identified from the selected 20 years of annual reports. This resulted in a Cohen's kappa of 0.82, which indicates high inter-coder reliability (Weber, 1990). The different coding results among the coders were primarily due to the coder overlooking some of the realized strategic renewal actions. These discrepancies were then discussed and resolved using the coding rules in the manual as a guideline. Table III shows three illustrative examples of the coding results. We specified the year, paragraph, and page number of the annual report in which a strategic renewal action was reported. In some cases, there were cross-page references found. For instance, the general description of the realized strategic renewal actions reported in the Executive Summary page of the annual report was mentioned in more detail in the later page(s) of the annual report.

Measures

Qualitative Study: 1907–2004

To structure the analysis of strategic renewal actions for the whole period 1907–2004, we divided the total 98-year period into five meaningful periods: (1) the early period of Shell, World War I, and the post-war period (1907–26); (2) the pre-war period and World War II (1927–46); (3) the post-war period until the mid-1960s, including the reorganization that led to the creation of Shell's CMD (1947–66); (4) the period of staying competitive and dealing with OPEC pricing policy (1967–86); and (5) the turbulent period that led to the incorporation of Royal Dutch Shell plc (1987–2004).

Table IV presents the average of strategic renewal actions for the five successive periods. For the content and context dimensions, we computed the exploitation ratio, exploration ratio, external ratio, and internal ratio. For the process dimension, we computed the frequency/speed (average strategic renewal actions in 20-year periods) and volatility (standard deviation) of strategic renewal actions. Three main long-term trends in strategic renewal appear in Table IV. First, the exploration ratio increased until the mid-1960s and subsequently decreased, i.e. a long-run change occurred from an exploratory strategic renewal trajectory towards an exploitative strategic renewal trajectory. Second, the internal ratio was high until World War II, and thereafter lower and relatively stable. Third, the frequency of strategic renewal actions increased over time; the volatility was highest in the period after World War II until the mid-1980s, before slightly decreasing in the period 1987–2004. Below, we highlight interesting developments for a few periods and relate these to indicators of top managers' corporate governance orientation.

Regarding external-growth strategic renewal trajectories, Table IV shows that Shell's external ratio generally decreased during the period 1927–46. This could be attributed to the environmental turbulence due to the Great Depression in the 1930s and World War II. During these turbulent times, the firm was relatively cautious in initiating or forming external alliances. The period 1967–86 shows the highest external ratio, indicating that Shell was focused on growth through externally-oriented initiatives such as mergers, acquisitions, joint ventures, and alliances. In the period 1987–2004, there was a slight drop in the external ratio due to intensified competition in the oil industry, which prompted Shell reduce to its diversification through external growth (Sluyterman, 2007).

The most explorative period of strategic renewal appears to have been the period 1947–66. Although World War II was an important environmental shock in the corporate landscape of the oil and gas industry, Shell appeared to grasp opportunities in the wake of the war through numerous diversified initiatives outside its core business in oil (Howarth, 1998; Howarth and Jonker, 2007; Yergin, 1993). This historical evidence is corroborated by the insight from one of our interviews. During the interview, a retired top manager indicated that in the 1960s, Shell's focus on stakeholders (associated with the Rhine corporate governance orientation; see Table I) was stronger than its focus on shareholders, encouraging the firm to focus on long-term explorations.

We found support for this statement from the historical archive at Shell, i.e. in the CMD Minutes of Meeting dated 4 May 1971: ‘In the late 1960s, shareholders did not necessarily come first’ (Shell's CMD files, DCS, S65). The CMD chairmen during the 1960s were presidents of RD, J. H. Loudon and L. E. J. Brouwer; both were Dutchmen with upstream (output-function) backgrounds (see Table II).

In the period 1967–86, Shell's exploitative strategic renewal trajectory demonstrated an increasing trend. This trend reflected the environmental turbulence of the time, due to the energy crisis in 1973 and OPEC pricing policy from 1973 to 1986, which increased the firm's propensity to pursue exploitative strategic renewal actions. The decreasing trend of Shell's exploratory strategic renewal trajectories in the period 1987–2004 indicates a tendency of the company to focus more on improving existing competencies rather than building new competencies. This coincides with the shift towards a stronger emphasis on shareholder values.

In the annual reports, the shift towards paying more explicit attention to shareholders was noticeable. For instance, the report of 1988 mentioned ‘the endeavour to maintain profitability to provide value to shareholders’ (p. 3), followed by the view in 1993 that ‘return on capital employed is our key profitability criterion’ (p. 1). This signifies a strong orientation towards the Anglo-Saxon model. The following interview quotes reflect this shift:

Additionally, one of the top managers of Shell shared with us his experience of the difference between being led by a British chairman and by a Dutch chairman. He pointed out that he could see there was a shift towards a stronger shareholder emphasis when the chairman of CMD was a Briton:

For the period of the 1960s until the unification, the triangulation of the above qualitative historical evidence with our hypotheses indicates that top managers with the Anglo-Saxon corporate governance orientation are more likely to pursue exploitative and external-growth strategic renewal trajectories than those with the Rhine orientation. This qualitative inference will be tested in the following quantitative study.

Quantitative Study: 1959–2004

Descriptive statistics are shown in Table V. To examine the issue of multicollinearity, we calculated variance inflation factors (VIF) for each of the regression equations. The calculated VIF values range from 2.3 to 2.9, thus well below the rule-of-thumb cut-off of 10 (Hair et al., 1998). Table VI provides the results of our hierarchical regression analyses.

The baseline models (Models 1 and 4) contain the control variables. Models 2 and 5 incorporate the CEO- and TMT-level variables of top managers' Anglo-Saxon corporate governance orientation regarding exploitative and external-growth strategic renewal trajectories, respectively. Models 3 and 6 examine the moderating effect of shareholders from Anglo-Saxon countries on exploitative and external-growth strategic renewal trajectories.

Model 2 investigates the effect of top managers' Anglo-Saxon corporate governance orientation on exploitative strategic renewal trajectories. First, regarding top managers' nationality, Model 2 shows that the coefficients of the CMD members and chairmen for exploitative strategic renewal trajectories are positive and significant (β of CMD = 0.142, p < 0.01; β of chairman = 0.136, p < 0.05). Thus, Hypothesis 1a, which relates top managers from countries associated with the Anglo-Saxon corporate governance orientation to exploitative strategic renewal trajectories, is supported. Second, regarding functional backgrounds, the coefficients of the CMD members and chairmen for exploitative strategic renewal trajectories are positive and significant (β of CMD = 0.143, p < 0.01; β of chairman = 0.135, p < 0.05). Thus, Hypothesis 2a, which relates top managers with throughput-oriented functional backgrounds to exploitative strategic renewal trajectories, is also supported. Overall, these findings suggest that top managers' Anglo-Saxon corporate governance orientation by nationality and functional backgrounds relate positively to the extent to which managers pursue exploitative strategic renewal trajectories.

Model 5 investigates the effect of top managers' Anglo-Saxon corporate governance orientation on external-growth strategic renewal trajectories. Regarding the nationality of top managers, the coefficients for external-growth strategic renewal trajectories are positive and significant both for the CMD- and the chairman-level variables (β of CMD = 0.153, p < 0.001; β of chairman = 0.156, p < 0.001). Thus, Hypothesis 1b, regarding external-growth strategic renewal trajectories for top managers of Anglo-Saxon nationality, is supported. Regarding functional backgrounds, the coefficients for external-growth strategic renewal trajectories are positive and significant for both the CMD- and the chairman-level variables (β of CMD = 0.140, p < 0.05; β of chairman = 0.138, p < 0.05). This supports Hypothesis 2b that top managers with throughput functional backgrounds are more likely to pursue external-growth strategic renewal trajectories. In sum, our findings indicate that by nationality and functional backgrounds, managers with an Anglo-Saxon corporate governance orientation are more likely to pursue external-growth strategic renewal trajectories than those with a Rhine corporate governance orientation.

Model 3 examines the moderating effect of proportion of shareholders from Anglo-Saxon countries on exploitative strategic renewal trajectories. The interaction between this variable and the Anglo-Saxon CMD variable increases the extent to which top managers pursue exploitative strategic renewal trajectories, as the coefficient is positive and significant (β = 0.147, p < 0.01). Hypothesis 3a is thus supported. Model 6 investigates the moderating effect of the proportion of shareholders from Anglo-Saxon countries on external-growth strategic renewal trajectories. The interaction between this variable and the Anglo-Saxon CMD variable strengthens the extent to which top managers pursue external growth as the coefficient is positive and significant (β = 0.143, p < 0.01). This result supports Hypothesis 3b.

For further analysis, we perform an equal-period comparison. Specifically, we focus on the period 1985–92 during the chairmanship of the CMD by a Royal Dutch executive (Lo van Wachem) and on the periods 1992–93 and 1998–2002 during the chairmanship of Shell Transport & Trading executives (Peter Holmes, Mark Moody-Stuart, and Phil Watts). See Table II for a chronology of the Shell chairmanship. In selecting these years, we also take into account the period following 1997 when Shell Oil Company in the USA was integrated into the group. This integration understandably increased the Anglo-Saxon orientation of Shell. Table VII shows the results of the computed average exploitation and external ratios during the two different leaderships of the CMD at Shell and the associated corporate governance orientation.

As shown, the extent to which Shell's managers pursued exploitative strategic renewal was higher during the STT chairmanship (average exploitation ratio = 0.65) than during RD chairmanship (average exploitation ratio = 0.51). The difference of the average exploitation ratio between the two chairmanships is significant (t-value = 2.35, p < 0.05). This finding concurs with our previous findings in support of Hypotheses 1a and 2a. However, with this smaller sample size, the difference between the external ratios under RD versus STT chairmanship is not significant.

Limitations and Future Research

Our study has several limitations, suggesting an agenda for future research. First, as our study focuses on a single-firm context, care should be taken about generalizing our findings. In this sense, a potential issue for future research is to incorporate varying industry contexts for a further understanding of the influence of top management team corporate governance orientation on strategic renewal (Filatotchev, 2007). As Malerba (2004, 2005) and Teece et al. (1997) propound that a strategic path depends on a specific industry in which it takes place, studying the industry context may prove useful. It is possible that due to differences among industries regarding resources such as managers, knowledge, and technology (Malerba, 2004, 2005), the effect of top managers' corporate governance orientation on how firms in different industries conduct strategic renewal may differ. For instance, science-intensive industries (e.g. pharmaceuticals) that require a lot of high risk capital for research and development may encourage exploratory strategic renewal actions even when the top management teams have an Anglo-Saxon corporate governance orientation. It should also be noted that typically top managers in these sectors have functional backgrounds that make them more sensitive to new technology development and advancement.

Second, our analysis of the strategic renewal actions of a firm focuses on the managerial intentionality perspective (Hutzschenreuter et al., 2007; Volberda and Lewin, 2003). It will be useful in future research to investigate the interaction between contextual factors from the external environment and internal firm strategies (Pettigrew, 1987). Such an approach will contribute to the understanding of ‘the effectiveness of corporate governance practices in terms of alignment of organizations with a more contextualized view of organizational environments’ (Filatotchev, 2007, p. 1056). Taking a co-evolutionary perspective would also be interesting. For instance, it may be interesting to investigate how higher exploration ratios in strategic renewal, indicating a higher level of absorptive capacity, enable a firm's proactiveness to cope with environmental change (Van Den Bosch et al., 1999).

Third, our focus is on top managers. Future research may investigate the impact of other management levels, i.e. middle-level and operational-level managers, on strategic renewal actions, particularly regarding exploitation and exploration (Mom et al., 2007). It may also be interesting to study how managers across hierarchical levels deal with strategic role conflict in managing strategic renewal trajectories (Floyd and Lane, 2000).

Fourth, our study was limited by a lack of data to take into account the size of strategic renewal actions. As in other recent research based on content analysis (e.g. Uotila et al., 2009), we assume that each strategic action has the same weight (Flier et al., 2003; Volberda et al., 2001b). Finally, more longitudinal research is needed (Helfat, 2000; Kieser, 1994). By combining a historical analysis of a long-lived firm with theory-driven constructs, such as strategic renewal and exploitation/exploration in this paper, new and interesting long-term developments and relationships between these constructs became accessible for further investigation, such as the impact of alternating TMT's corporate governance orientation on a firm's strategic renewal trajectories. In this way, historical analysis in management research is important for informing theory development (O'Sullivan and Graham, 2010).

To conclude, drawing on an extensive body of historical data from Royal Dutch Shell plc, we have provided both qualitative and quantitative empirical evidence that top managers' corporate governance orientation plays an important role in guiding a firm's strategic renewal trajectories. This role appears to be an important organizational antecedent that needs to be embedded in the study of strategic renewal.