Do board interlocking networks influence high performance in corporate sustainability?

I would like to explore the following question:

Do board interlocking networks influence high performance in corporate sustainability?

Board interlocking networks are complex social networks among company boards created by directors sitting on multiple boards.[i] Many prior studies have examined the origins and effects of board interlocking networks in different contexts and across various time periods, showing that firms’ actions are often related to their interlocks. For example, in a recent study, Wong, Gygax and Wang (2015) present evidence that board interlocks are positively linked with similarities in the design of executive compensation packages in interlocked firms as well as in a number of board characteristics.[ii] In the context of corporate strategy, Davis (1991) demonstrated that there is an interlock network diffusion process with regard to the use of poison pills as a defense strategy.[iii] Haunschild (1993) showed that corporate acquisition activities are spread over the interlocking network by imitation processes.[iv] Palmer et al. (1993) demonstrated that interlocks are associated with the adoption of a multidivisional form within corporations,[v] and Galaskiewicz and Wasserman (1989) showed that interlocks are linked with how corporations decide on their charitable recipients.[vi]

By sitting on multiple company boards, directors can facilitate the sharing of information, experience, and other techniques and managerial practices. I would like to investigate whether there is evidence that robust sustainability management practices are diffused through board interlock networks. My hypothesis is that the existence of a board interlock between two boards is correlated with the similarity in corporate sustainability strategy, governance and performance in the two companies. In other words, I expect to observe similar corporate sustainability approaches and outcomes in connected firms.

In order to test this hypothesis, I propose to conduct a social network analysis of the board interlock network of a selection of companies included on the Corporate Knights Global 100 (CKG100)[vii] list of the most sustainable companies in the world (published annually from 2005 to 2019) at three points in time – 2009, 2014, and 2019. Each year’s network would include the selection of CKG100 companies as well as the firms with which they are interlocked by one or more board members (this data may be extracted from a database such as BoardEx, GMI Ratings Corporate Governance Database, or ORBIS database).

For each of these networks, I would then examine the homophilia (E-I index) of companies related to the following attributes: CKG100 inclusion/exclusion status, existence of a board level sustainability committee, and existence of an executive level sustainability position within the firm (this data should be available in companies’ corporate sustainability reports). I would also conduct various sub-group analyses (clique and newman-girvan) to determine if any sub-groups tend to form on the basis of the same attributes. Finally, I would analyze the evolution the networks over time to see if there was an increase in homophilia and/or sub-group formation on the basis of these attributes over time, indicating an influence of board interlock networks on corporate sustainability strategy, governance and performance over time.

---

[i] Mizruchi, M.S., 1996. What do interlocks do? An analysis, critique, and assessment of research on interlocking directorates. Annu. Rev. Sociol. 22, 271–298.

[ii] Wong, L., Gygax, A., Wang, P., 2015. Board interlocking network and the design of executive compensation packages. Social Networks 41, 85-100.

[iii] Davis, G.F., 1991. Agents without principles? The spread of the poison pill through the intercorporate network. Adm. Sci. Q. 36, 583–613.

[iv] Haunschild, P.R., 1993. Interorganizational imitation: the impact of interlocks on corporate acquisition activity. Adm. Sci. Q. 38, 564–592.

[v] Palmer, D.A., Jennings, P.D., Zhou, X., 1993. Late adoption of the multidivisional form by large U.S. corporations: institutional, political and economic accounts. Adm.Sci. Q. 38, 100–131.

[vi] Galaskiewicz, J., Wasserman, S., 1989. Mimetic processes within an interorganization field: an empirical test. Adm. Sci. Q. 34, 454–479.

[vii] The Corporate Knights Global 100 is one of the most widely publicized and well-respected corporate sustainability rankings, based on companies’ public disclosure of 21 key performance indicators (KPIs) covering resource management, employee management, financial management, clean revenue and supplier performance.