Research purpose: In an emerging economy such as South Africa, one of the primary goals of an organisation is growth and good governance, which can be achieved through well-governed structures and continuous innovation in the face of challenges. This study identified potential links between the multidimensional constructs of CGS and EO at the firm level in the South African oil and gas industry.

Motivation for the study: One of the greatest challenges faced by organisations when implementing CGS is to ensure compliance.

Research design, approach and method: Board members and senior decision-makers were surveyed in the South African oil and gas industry, using a structured questionnaire. A series of correlational analyses were used to determine the strength of relationships between the dimensions of EO and CGS.

Main findings: By drawing extensively on existing theory on EO, this study found that the different dimensions of CGS have a significant and positive relationship with each of the EO dimensions – innovation, risk-taking and proactiveness.

Practical/managerial implications: Corporate boards supportive of entrepreneurship must provide appropriate reward systems, top management support, explicit goals and appropriate organisational values which signal to employees that entrepreneurial behaviour action is desirable. Practitioners should scrutinise their governance structures in their organisations to ensure an alignment with EO practices.

Contribution/value-add: Generally, research on EO and governance in Africa as a whole may be considered as valuable, as very few empirical studies have been previously conducted which focus on the nexus of CGS and EO. The study is one of the first to conduct empirical research on EO and CGS in an emerging market and unique industry context – the South African oil and gas industry.

Corporate governance systems have been observed as one of the most important structures and mechanisms that regulate the relationships between executives and shareholders (Zahra, 1996). In South Africa, the first King Report on corporate governance (King I) (Institute of Directors, 1994) incorporates a code of corporate practices and conduct, the first of its kind which was aimed at promoting the highest standards of corporate governance in South Africa organisations (Dekker, 2002; IOD, 2002; Mans, 2011). Dekker (2002) observed in his analytical paper on the King II Report (IOD, 2002), that organisations have to ‘comply if not, explain’ matters relating to boards’ transparency on take-overs. Moreover executives’ responsibilities in setting out controls and monitoring of strategic decision processes that will position the organisation to be economically sustainable are prescribed (Esser & Dekker, 2008; West, 2006). In the same manner, the King III Report (IOD, 2009) extends the duties of boards and executives to be directly involved in strategic decision controls, as well as in the implementation of organisational core competencies. This includes involvement in securing codes of good practices, including but not limited to compliance with legislative, environmental, energy, labour and national occupational health and safety guidelines (Miller & Meelis, 2005).

Researchers have documented that organisations can address challenges by scrutinising their CGS and ensuring an alignment with their vision, mission, strategies, objectives and goals through an effective and well-structured board, along with executives that can direct, monitor and support entrepreneurial initiatives (Gabrielsson, 2007). By having well-defined and established CGS, company board members and executives are able to shape company vision and increase managerial commitment towards formulating strategies that lead to a sustainable competitive advantage.

Not only are organisations seeking to re-orientate themselves to become strategically innovative, but previous literature and empirical findings point to entrepreneurial orientation (EO) as an important element in organisational and economic development (Kreiser, Marino & Weaver, 2002). Entrepreneurship within organisations is a fundamental posture, instrumentally important to strategic innovation, particularly under shifting external environmental conditions (Knight, 1997; Urban, 2010). Many firms are seeking to transform their organisations (Serfontein, Basson & Burden, 2009) and look to EO as a way of combating the lethargy and bureaucracy that often accompany business size and cultural lock-ins (Burns, 2004; Morris, Kuratko & Covin, 2008).

The relationship between EO and CGS has long puzzled researchers, where little empirical evidence has been found to support the idea that governance structures relate to any type of entrepreneurial activity at the corporate level (Beaver, Davies & Joyce, 2007; Fiegener, 2005). Despite the importance of EO to firms, literature on corporate governance has tended to focus on issues relating to the board and executives’ demographics, ownership structure, board size, board composition and organisation performance, without assessing any potential relationships or linkages between entrepreneurship initiatives and different corporate governance mechanisms. Several researchers agree that insufficient attention has been paid to the role of how board and executive members may influence the adoption of entrepreneurial activities at their firms (Naldi, Nordqvist, Sjöberg & Wiklund, 2007; Thyil & Young, 2010).

The South African oil and gas industry faces a challenging environment that is required to make capacity additions, innovate regularly as a result of rapid change in technological advancement and also consider new and alternate products which are environmentally friendly (Henderson & Cool, 2003). These challenges are confirmed by the South African Petroleum Industry Association (SAPIA), which advocates skills transformation at all levels of the corporate structure whilst, at the same time, acting competitively and responding to ethical and environmental challenges (Miller & Meelis, 2005).

Despite these imperatives, firms in the South African oil and gas industry have been relatively unsuccessful in formulating and implementing stringent CGS that will enhance speedy transformation, whilst, at the same time, encourage corporate entrepreneurial activities and attract international investment (Rossouw, Van der Watt & Malan, 2002; West, 2006). A deep and thorough understanding of entrepreneurship at the firm level and CGS is important not only for academic purposes but also has salience for practitioners and policymakers. These implications relate to firm profitability and competitiveness, as well as to the overall economic performance of industry and the national economy (Bosma & Harding, 2006).

The critical question this study seeks to address is whether or not there are any significant relationships or links between the various attributes of CGS and levels of EO. The study investigates if there is any significant relationship between the CGS dimensions of board effectiveness, board knowledge and experience, board commitment and board involvement in decision control, with the EO dimensions of innovativeness, proactiveness and risk-taking.

Building on existing theoretical and conceptual frameworks, this study has relevance to academics, senior decision-makers, and governance practitioners. The study contributes to existing literature and extends current knowledge of the EO construct by linking it with CGS and applying it to an under-researched context: the oil and gas industry in an emerging market. The study aids in understanding the nexus between the various dimensions of CGS and EO, thereby advancing the knowledge of entrepreneurial practices in this highly capitalised and highly regulated industry.

The study starts by briefly reviewing past research on CGS and EO in order to operationalise the constructs under investigation. The research methodology is then delineated, in terms of sampling, instrument design and data analysis best suited to test the hypotheses. The results are scrutinised in terms of previous theory and contextualised from an emerging market perspective. Both theoretical and practical implications are drawn from the empirical evidence and recommendations for future research are made.

The oil and gas industry constitutes building blocks at every stage of production and consumption in key sectors of economic life such as petrochemicals, chemicals, agriculture, construction, manufacturing and services industries. Human lives have been revolutionised through this industry’s tremendous growth, with the promise of economic sustainability at maturity (Mbendi Information Services, 2008). The South African oil and gas industry has undergone, and is still undergoing, a series of transformations from the industry that served the apartheid era of secrecy and boycotts to one more in line with the democratic and economic needs of South Africa (Miller & Meelis, 2005). The last 10 years has produced a wave of activity in the industry to initiate and invigorate rigorous innovative thinking through EO (SAPIA, 2009). South Africa, as an emerging economy, has adopted international standards in formulating CGS through the series of King Reports – King I (IOD, 1994), King II (IOD, 2002) and King III (IOD, 2009). These reports on governance codes aim to shape and guide organisations towards sustainable economic growth (Wieland, 2005). There has been mounting pressure in transitional and emerging economies for board involvement to be more transparent with greater accountability, specifically in relation to strategic entrepreneurial decision control, so as to ensure innovative growth and sustainability (Judge & Zeithaml, 1992). Growth and sustainability are likely to take shape when entrepreneurial decision control is exercised by top management to encourage entrepreneurial thought and action throughout the organisation (Morris & Kuratko, 2002).

In South Africa, board and executive roles and responsibilities are prescribed by the King III Report on corporate governance and codes of best practice (IOD, 2009; South African Institute of Chartered Accountants, 2009), where the board and its executives must exercise a skilful approach to governance (Okpara, 2010) and have competence and ability to challenge management preferences and monitor performance. Through an effective and competent monitoring board, which understands the industry environment, executive members are able to monitor demand and supply, trends and forecasts, and act proactively by carefully considering capacity building in terms of the firms earning potential (Henderson & Cool, 2003). Board involvement in decision controls includes non-routine decision-making, resource allocations and strategic decisions that could affect the long-term performance of the organisation (Cutting & Kouzmin, 2002).

Recent studies have focused on the complexities of CGS and board commitment required towards building integrity in order to execute their responsibility (Windsor, 2009). Consequently, the need to focus on the qualities of governing boards’ and executives’ capabilities, the evaluation of boards and executives professional expertise and qualifications, the experiences and integrity of the directors (Rossouw et al., 2002), issues of information provision, transparency, transformation, monitoring, reporting, knowledge and competence (Esser & Dekker, 2008), as well as the extent of board and executive participation in management controls, in organisations where corporate entrepreneurial activities take place, is pivotal (Filatotchev & Nakajima, 2010; Naldi et al., 2007).

In the corporate context, an effective board is one that can efficiently implement its role and responsibilities (Nicholson & Kiel, 2004), show commitment to the successful execution of the organisations’ entrepreneurial strategic decisions (Mustakallio, Autio & Zahra, 2002), and review and approve strategic plans, risk management, valuation of capital commitment and take complex decisions (Kor & Sundaramurthy, 2009). The absence of qualified board and executive members may negatively impact the ability of the board to perform effectively, particularly as trends indicate that boards of directors have been grossly undermined by shareholders in terms of appointments and recruitment (Allcock & Filatotchev, 2010; Ensley, Pearson & Amason, 2002; Larcker & Tayan, 2011). One of the basic considerations in appointing and recruiting executives is to ensure a high quality and knowledgeable board that understands the organisations’ core competencies and its own distinct roles and responsibilities to achieve long-terms performance (Mwenja & Lewis, 2009).

The knowledge and experience that board and executive members possess has a direct impact on how governance principles are applied and organisational goals achieved (Pukthuanthonge & Sundaramurthy, 2009). Moreover, for boards and executives to effectively perform their duties, they need to have the requisite capabilities, general knowledge and expertise (Kor, 2003), which, in turn, will reflect on their ability to position the organisation in terms of adopting an EO.

Corporate governance and the process of managing, controlling and monitoring of operational activities are diverse in nature and context specific (Cutting & Kouzmin, 2002). Recognising the multifarious nature of corporate governance, the construct is best conceptualised as multidimensional, reflecting the guidelines, as pointed out in King III Report (IOD, 2009; SAICA, 2009), and consisting of the following four dimensions (Cutting & Kouzmin, 2002; Ogbechie, 2009):

• Board effectiveness and its competence in diagnosing and evaluating events and trends in the larger environment that may present specific entrepreneurial opportunity for the organisation.

• Directors’ and executives’ knowledge and experience in the organisational strategic issues, such as the organisations’ competitive position in the industry environment and the directors’ and executives’ ability to examine performance and how well the organisation is doing on long-term entrepreneurial goals.

• Board commitment and recognition of complexities to foster effective decision-making and help reverse failed initiatives and policies.

• Board involvement in decision controls, such as reviewing and rectifying entrepreneurial opportunities, threats and risks to which the organisation may be exposed.

Prior literature on GCS has focused on ownership structure, agency-related issues and alternative structures for the board of directors. This narrow focus on traditional issues of CGS does not adequately address how elements of governance structures may support or hinder corporate innovation, risk-taking and proactive behaviour in the face of technological change and environmental uncertainty (Core, Holthausen & Larcker, 1999; Cutting & Kouzmin, 2002; Diochon, 2010; Ensley et al., 2002).

Investigating the oil and gas industry, several researchers (Armour & Teece, 1978; SAPIA, 2009) find that a key part of a technological and innovative strategy is the interaction of that strategy with the ventures’ external environment (Zahra & Bogner, 1999). Miller and Meelis (2005) report that the period post-1994 introduced changes in South African legislation which had a significant negative effect on this industry. The oil and gas industry is constantly faced with the challenges of technological advancement, capacity expansion, innovation in alternate products, and faces a high degree of market, environmental and regulatory uncertainty (SAPIA, 2009). When the environment is characterised by complexity and dynamism, firms have to anticipate future scenarios and develop proactive EO strategies to counteract ambiguous and unstructured surroundings (Allen & Stearns, 2004). Moreover, many firms that wish to adopt entrepreneurial behaviour may be negatively affected if the organisations’ CGS do not support EO (Henderson & Cool, 2003). Gabrielsson (2007) finds that an active board and executives can have a strong influence on an organisation’s value-creation ability through their commitment to take an entrepreneurial posture. Similarly, Drew, Kelly and Kendrick (2006), propose that researchers adopt an integrated approach to manage corporate risk, which enhances board and executives’ knowledge and competence to handle complexities of risk in meeting strategic organisational goals.

The extant organisational research provides theoretical support for the EO construct, in both the fields of entrepreneurship and strategic management. The EO construct is salient not only for large organisations but also for small and medium-sized organisations, under different stages of economic development, in varied cultural contexts (for a detailed review of EO, see Urban, 2011). Table 1 provides a consolidation of how the entrepreneurship phenomena have been conceptualised in previous studies and is made manifest in organisations.

Innovativeness is the fundamental posture of an entrepreneurial organisation in terms of developing new products or inventing new processes (Drucker, 1979; Schumpeter, 1934). Innovativeness as an attribute describes an organisations’ willingness to add newness with added value. Consequently, the first hypothesis is formulated to reflect the innovation dimension of EO as it relates to the different dimensions of CGS:

• Hypothesis 1: The EO dimension of innovation is positively related with the levels of board effectiveness, knowledge, commitment and involvement.

Risk-taking is associated with the willingness to commit significant resources to opportunities and to take calculated business risks (Aloulou & Fayolle, 2005). Risk-taking, according to Voss, Voss and Moorman (2005), is a commitment to experimentation in the face of uncertainty. The second hypothesis is informed by the risk-taking dimension of EO, where it is expected that:

• Hypothesis 2: The EO dimension of risk-taking is positively related with the levels of board effectiveness knowledge, commitment and involvement.

Proactiveness is perseverance in ensuring initiatives are implemented and is concerned with adaptability and tolerance of failure. This leads to the third hypothesis, where:

• Hypothesis 3: The EO dimension of proactiveness is positively related with higher levels of board effectiveness, knowledge, commitment and involvement.

These dimensions have been extensively documented and, according to Lumpkin and Dess (1996), all the dimensions are central to understanding the entrepreneurial process, although they may occur in different combinations, depending on type of entrepreneurial opportunity the firm pursues. Firms can only be labelled as entrepreneurial if they are simultaneously risk-taking, innovative and proactive (Covin, Green & Slevin, 2006). These separate hypotheses are formulated to discern if any associations are significant, based on each of the EO dimensions as well as on an aggregate overall EO score. The formulation of the hypotheses allows for the testing of both one-dimensional and multidimensional levels of these constructs.

A research design involving a Web-based self-reporting survey instrument was administered, which was sent to a select sample of board members and executives in the South African oil and gas industry. The survey was distributed via Surveymonkey (http://www.surveymonkey.com), which was selected principally because of its functionality and, more importantly, because it was considered suitable for the target population of key company decision-makers who are likely to use online resources regularly.

Section A of the instrument was designed to reflect the theoretical dimensions of CGS, which included variables on board effectiveness and competence, knowledge and experience, commitment and recognition of complexities, involvement in strategic decision-making processes and monitoring and control, which was made up of 43 items. These items were measured using a seven-point scale, from 1 (strongly agree) to 7 (strongly disagree), with numbers 2 through 6 depending upon their best estimate of an intermediate position (see Appendix).

Section B of the instrument was designed to reflect the EO dimensions of innovation, risk-taking and proactiveness, consisting of nine items. Many alternative EO conceptualisations are to be found (Brown, Davidsson & Wiklund, 2001) and have demonstrated some usefulness; however, as Davidsson (2004) suggests, using the existing EO measure has the advantage of theoretical backing, a multidimensional construct and theoretically meaningful relationships established in previous studies, thus allowing for more refined knowledge to evolve. Consequently, EO was measured along a seven-point bi-polar Likert scale, with nine items representing the three dimensions of innovativeness, proactiveness, and risk-taking. Respondents had to circle number ‘1 if the statement on the left-hand side of the scale best described their reaction to the question’, or circle number ‘7 if the statement on the right-hand side of the scale best described the reaction to the question’ (see Appendix). Previous studies (Urban, 2010) have established EO scale validity in the South African context; however, EO scale reliability was re-tested for this sample of respondents.

Consistent with previous studies (Wiklund, 1999) control variables included, firm age, firm size in terms of employee numbers, the position currently occupied by the respondent, the respondent’s number of years in current position, and the board size and its composition.

In order to ensure the instrument had face and content validity, a preliminary analysis via a pilot test was undertaken. This process allowed the researcher to refine the questionnaire design to maximise responses. This procedure ensured that the respondents had no difficulties in answering the questions and there was no problem in recording the data.

Initially, demographic profiles of the respondents were calculated using frequency distributions and corresponding graphs, followed by an examination of the scale reliabilities. Descriptive statistics included calculating measures of central tendency (the mean and median values, variability), the standard deviation, range and distribution shape (skewness and frequency distributions) and internal consistency reliability of the scales, by reporting on their Cronbach’s alpha values. Negative skewness values indicated a clustering of scores at the high-end of the scale. The Kolmogorov-Smirnov, Lilliefors, and Shapiro-Wilks tests were used to check for normality of data distributions and rendered a significant p-value of 0.000, which revealed that normality assumptions had been violated, which is quite common in large samples. Transformations of the score distributions were computed in an attempt (though unsuccessful) to transform the negatively skewed score distribution into normally distributed scale. With a reasonably large initial sample size as used in this study (n = 119), skewness will not make a substantive difference in the analysis (Tabachnick & Fidell, 2007).

Consequently, the hypotheses were tested using a Pearson correlation analysis, where the corresponding scatter plots were scrutinised. Moreover, canonical correlation analysis was also employed as additional analyses, because this technique can accommodate any metric variable without a strict assumption of normality (Hair, Black, Babin & Anderson, 2010). Canonical correlation analysis allows for multiple measures to be summarised into variates or linear combinations of variables with optimised weighting, extracting maximum variance from the original measures (Hair et al., 2010).

FIGURE 1: Matrix plot for the linear relations between corporate governance systems and entrepreneurial orientation dimensions.

The value of the canonical correlation is high at R = 0.860 and is interpreted as the simple correlation between the weighted sum of the scales of CGS and EO. The canonical R is the overall multivariate correlation between the two sets of variables (Figure 2). Moreover, the canonical R-square value of R² = 0.732, which shows that almost three-quarters of the variance in the two sets of variables have been accounted for by the first canonical root. This is considered substantial as the summary measure has accounted for most of the variance in the two data sets, as delineated by the weighted sum of the scales of CGS and EO. Moreover, the variance extracted by all the canonical roots is high for each set of variables (89.73% and 100% for CGS and EO, respectively).

FIGURE 2: Canonical variance between the weighted sum of the scales of corporate governance systems and entrepreneurial orientation.

Based on the empirical results of this study, all of the hypotheses are fully supported, where significant associations between the dimensions of EO and CGS are found. Moreover, the strength of the correlations between the dimensions of EO and dimensions of CGS reveal that board knowledge, followed by commitment, are the most strongly associated with the EO dimensions of innovation, risk-taking and proactiveness. The importance of these variables resonates with previous research, which finds that EO is more advanced where there are high levels of board commitment (Cutting & Kouzmin, 2002). Commitment of time and cognitive energy is required by boards and executives for the effective fostering of EO. Pro-entrepreneurship organisational architectures are likely to take shape when there is an entrepreneurial strategic vision endorsed by the board and top management that encourages entrepreneurial thought and action throughout the organisation (Morris & Kuratko, 2002).

A deep and thorough understanding of the association between CGS and EO is important not only for academic purposes but because the subject has salience for practitioners. These implications relate to the profitability and competitiveness of the firm. As opportunities drive strategy, almost any opportunity is relevant to the firm. Once an opportunity is identified, resources are needed to exploit it. An entrepreneurial firm attempts to maximise value creation by exploiting opportunities, whilst minimising the resources required to support such entrepreneurial initiatives. The resources are the starting point and only opportunities that relate to existing resources are relevant to the firm. Commitment to opportunity is related to strategic action at the board level. Research on entrepreneurial behaviours and opportunity is well documented, where opportunity-focused firms are innovative and creative and where the propagation of new ideas is encouraged at this top-management level (Kuratko & Audretsch, 2009). The present study results confirm that board commitment of resources and control of resources is pivotal to fostering higher levels of EO.

Furthermore, firms match strategy-making (micro level) with board level strategic dynamics (macro level) to exploit existing core business opportunities or explore potential new growth opportunities (Burgelman & Grove, 2007).

To ensure alignment between EO and CGS, corporate boards supportive of entrepreneurship must institutionalise appropriate reward systems and management support structures and help formulate explicit goals and relevant organisational values which signal to employees that entrepreneurial behaviour is desirable. For EO to become a meaningful conduit for a corporation’s value creation activities, it cannot be confined to a specialist function within the organisation. Entrepreneurial orientation needs to permeate the entire organisation, where organisations pursuing EO are likely to exhibit a cascading yet integrated set of entrepreneurial actions at the board, senior, middle, and first-levels of management, with managers across levels being jointly responsible for their organisation’s entrepreneurial actions (Hornsby, Kuratko, Shepherd & Bott, 2009).

Generally, research on EO and governance in Africa as a whole may be considered as valuable, as very few empirical studies have been previously conducted which focus on the nexus of CGS and EO. In developing economies, where growth is often the primary goal of organisations, EO in firms can be particularly critical for firm profitability and survival (Antoncic & Hisrich, 2001). One major characteristic of firms in emerging markets is that established firms are being transformed into market-oriented enterprises. As the economy becomes more market-based, it is necessary for these reformed enterprises to undergo an entrepreneurial transformation at the organisational level in order to adapt to the transitioning institutional environment and maintain competitiveness in both local and global markets. The majority of research in EO and CGS has been conducted in the USA and, with the relevance of international entrepreneurship being recognised (Jantunen, Puumalainen, Saarenketo & Kylaheiko, 2005), the importance of further interrogating EO in an emerging country context is important. There is a need for further theorisation and empirical analysis of these different constructs under different contexts. Such investigations allow researchers to compare and examine different associations between CGS and EO under different environmental contexts (Bosma, Stam & Wennekers, 2010).

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