Director Overlap: Groupthink versus Teamwork

55 Pages Posted: 13 Aug 2020

See all articles by Jeffrey L. Coles

Jeffrey L. Coles

University of Utah - Department of Finance

Naveen D. Daniel

Drexel University - Department of Finance

Lalitha Naveen

Temple University - Department of Finance

Date Written: July 8, 2020

Abstract

We address two aspects of board dynamics — group-think and teamwork — that both arise from increased director overlap. Overlap captures the extent of common service by board directors. Greater overlap can lead to excessive cohesiveness of the group and thus group-think, where the desire for consensus overrides critical thinking. Alternatively, greater overlap can promote better teamwork through lower coordination and communication costs. We find that director overlap negatively affects firm value in dynamic firms, which stand to lose more from group-think, and positively affects firm value in complex firms, which have higher coordination costs and hence benefit from better teamwork.

Keywords: Corporate Governance; Boards; Director Overlap; Group-think; Teamwork; Dynamic Firms; Complex Firms; Director Tenure, Term Limits

JEL Classification: G32; G34; K22

Suggested Citation

Coles, Jeffrey L. and Daniel, Naveen D. and Naveen, Lalitha, Director Overlap: Groupthink versus Teamwork (July 8, 2020). Available at SSRN: https://ssrn.com/abstract=3650609 or http://dx.doi.org/10.2139/ssrn.3650609

Jeffrey L. Coles

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-587-9093 (Phone)

Naveen D. Daniel

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-5858 (Phone)
215-895-2955 (Fax)

HOME PAGE: http://lebow.drexel.edu/Faculty/DanielN

Lalitha Naveen (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-6435 (Phone)

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