Corporate Boards: How Connected Are Their Members Across Industries?

Many have used social network analysis to evaluate different aspects of corporate boards. Some have examined the influence of legal provisions targeting the composition of boards of directors on the intensity of board connectivity (Ofir, 2017). Others have evaluated how experience and network ties affect the influence of demographic minorities on corporate boards (Westphal and Milton, 2000). Most interesting is recent research on connectivity between corporate boards, looking at which board members serve on multiple boards (Mahdi, 2012).

Interlocking board directorates are prevalent across many industries in the United States. Interlock occurs when a member of the board of directors of one company sits on the board of directors of other companies. While some interlock within a specific industry may be wise, since a board member who has relevant industry expertise can offer more contextual knowledge into that field, too much interlock, or a lack of diverse professional experiences, can inhibit the ability of a board to manage different sorts of business challenges. Before looking further into the implications of interlocking boards, we must ask the question: are they, in fact, interlocked? The energy industry, being somewhat oligopolistic, would be a good candidate for the research and evaluation of the presence of board interlocking. Ideally, we would also evaluate a few other industries, so that we may compare them: energy, automotive, pharmaceutical, finance. 

The research question of such an analysis follows: do we observe high levels of interlocking boards across the largest U.S. companies in these industries: energy, automotive, pharmaceutical and finance?

The hypothesis of such an analysis would state that interlocking boards do exist across these companies in each industry. I would expect to find that at least one member of the board of each company would serve on the board of another company included in the analysis of that industry.

To perform this social network analysis, the data would need to be collected from the ‘Board’ website page of each of the company’s in the study. For a given company, each board member’s biography will list the other boards on which the board member serves. If a board member sits on the board of another company in the industry analysis, a connection/relationship will be marked for those 2 companies. Directionality would not matter for this study. We are concerned with whether the relationship exists and whether it exists across multiple firms. It will be very interesting to see how the data breaks down into ‘components’ – will most of the energy industry network be included in one component?

Such a study would be particularly useful for a secondary phase of research to answer the question -- do industries with interlocking boards under-perform, compared to industries where boards are less interlocked? One could compare the level of 'interlocked-ness' to each firm in the industry's financial performance. The results of this potential secondary phase of research could have serious implications for board composition and membership. 

Sources:

1. Ofir, Moran. How Law Changes Networks: A Social Network Analysis of Board Interlocks. 30 Apr 2017. Interdisciplinary Center (IDC) Herzliyah.

2. Westphal, James D. and Milton, Laurie P. How Experience and Network Ties Affect the Influence of Demographic Minorities on Corporate Boards. Jun 2000. Administrative Science Quarterly, Vol. 45, No. 2, pp. 366-398.

3. Mahdia, Khaled; Almajid, Ahmed; Safar, Maytham; Riquelme, Hernan; Torabi, Sadegh. Social Network Analysis of Kuwait Publicly-Held Corporations. 9 Aug 2012. Procedia Computer Science, Vol. 10, pp. 272-281.