Do Some Outside Directors Play a Political Role?

34 Pages Posted: 20 Jun 2000

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Charles R. Knoeber

North Carolina State University - Poole College of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 2000

Abstract

A substantial number of outside directors have experience in politics or government and in the private practice of law. We argue that, in part, these directors play a political role by providing advice and insight into the workings of government (or perhaps, by acting to influence the government directly). An implication is that these politically useful directors will be more important on the boards of firms for which politics matters more. We test this implication in three ways. First, for a sample of manufacturing firms, we construct measures of the importance of politics and use these to try to explain the incidence of politically useful directors. After controlling for board size, we find that where politics is generally more important (firms are larger), the incidence of both directors with political experience and lawyer-directors is greater. We also find that where cooperation with the government is more important (sales to government are larger, exports are larger, and lobbying is larger), the incidence of politically experienced directors is greater. But where fighting the government is more important (pollution abatement expenditures are larger and lobbying is smaller), the incidence of lawyer-directors is greater. Second, we examine the boards of electric utilities during the 1990s when the advent of retail competition has made politics more important and find that both relative to the past and relative to manufacturing firms, the incidence of politically experienced directors has increased. Finally, we explore the possibility that a governmental taste for diversity may give women directors a political role. Although we document an increased incidence of women directors over time, we find little evidence to suggest that women directors play a political role. Altogether, this paper provides empirical evidence on an important role of corporate boards that has not been scrutinized earlier.

JEL Classification: G30, K22, L20, L50

Suggested Citation

Agrawal, Anup and Knoeber, Charles R., Do Some Outside Directors Play a Political Role? (April 2000). Available at SSRN: https://ssrn.com/abstract=224133 or http://dx.doi.org/10.2139/ssrn.224133

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)

HOME PAGE: http://aagrawal.people.ua.edu/

Charles R. Knoeber

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States
919-513-2874 (Phone)
919-515-7873 (Fax)

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