Director Networks: Good for the Director, Good for Shareholders

Abstract

A director’s social and professional network contributes to his or her qualifications as a board member. In recent years, much attention has been paid to the negative aspects of inter-board connections, such as the spread of bad practices and a reduction in independence.

At the same time, not enough attention has been paid to the positive effects, including the access they provide to important market data and the referrals they bring for new business relationships.

We consider these effects in more detail and ask why it is so difficult for commercial governance ratings firms to incorporate this information into their analyses of governance quality

Related Research on SSRN: Boardroom Centrality and Stock Returns, Working paper dated: July 24, 2010, available at: http://ssrn.com/abstract=1651407.

Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

Keywords: interlocking directorates, board networks, board of directors, corporate governance

JEL Classification: G30, G34