Social Governance

64 Pages Posted: 2 Jul 2020

See all articles by Jeremy McClane

Jeremy McClane

University of Illinois College of Law

Yaron Nili

University of Wisconsin Law School

Date Written: Dec 15, 2019

Abstract

Corporate directors, like most people, are social creatures, and their social networks affect their decisions. But directors’ social networks remain both understudied and under-theorized by scholars and inconsistently addressed by courts. This Article comprehensively examines the importance of director networks to corporate governance for the first time. Using qualitative and quantitative data, the Article uncovers the importance of director networks to corporate governance and the implications that network theory poses for the study of corporate law. In doing so, the Article tackles an understudied corner of corporate decision-making at a critical time, when directors have an out sized influence over their companies and in many cases, the United States economy as a whole.

This Article builds on a robust literature in corporate governance and decision-making. Much of the existing scholarship has focused on whether directors — especially “busy directors” who serve on multiple boards — are meeting investors’ and regulators’ expectations. However, the literature overlooks an important aspect of busyness, that when directors serve on multiple boards, they also build a social network that extends beyond the companies they serve, spanning several degrees of separation. This Article shows how these broader connections affect corporate governance and discusses the legal implications of what it terms as “Social Governance.”

This Article makes three contributions to the literature. First, the Article identifies the significance of network theory to contemporary corporate governance discourse and develops a theoretical framework to better account for directors’ service on multiple boards. Second, it empirically examines the direct impact that director networks have on the governance of public firms. It does so through an original data set that reveals some of the positive effects that director networks have on companies’ governance and further demonstrates how network analysis adds important insights to existing empirical studies regarding director service on multiple boards. Finally, the Article suggests that the current discourse by regulators, institutional investors, and academics may underestimate the importance that director networks have for companies. The Article then suggests several policy reforms to address these findings.

Keywords: Directors, Corporate Governance, Networks, Accounting, Entrenchment

Suggested Citation

McClane, Jeremy and Nili, Yaron, Social Governance (Dec 15, 2019). Available at SSRN: https://ssrn.com/abstract=3623335

Jeremy McClane (Contact Author)

University of Illinois College of Law ( email )

504 East Pennsylvania Avenue
Champaign, IL IL 61820
United States
2173003756 (Phone)
61820-6909 (Fax)

Yaron Nili

University of Wisconsin Law School ( email )

975 Bascom Mall
Madison, WI 53706
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
34
Abstract Views
136
PlumX Metrics