Steve McDonald Richard Benton North Carolina State University

The investigators will study how corporate governance is structurally and institutionally embedded, focusing on the network of board interlocks, inter-organizational ties that form when a corporate director or CEO sits on the board of another firm. The investigators will analyze how corporate governance and board interlocks co-evolve. Specifically, they will study the mutual occurrence of four mechanisms that operate in the coevolution of director interlocks and corporate governance. These mechanisms are diffusion, selection, endogenous network mechanisms, and institutional change. The major research questions are: How do director interlocks spread governance conceptions between firms? and How do existing governance conceptions influence the selection of new directors? Examining each of these mechanisms in concert will provide a holistic picture of corporate governance and board interlocks. Moreover, the study will contribute considerable theoretical insights into issues of organizational change, the effects of legal environments, and micro-macro level interactions. The analysis will use network panel data on board ties and governance provisions for six time points between 1998 and 2006 and recently developed stochastic actor based models.

Broader Impacts

Research findings will advance theory and research on corporate governance and interlock networks across firms. The findings will be of interest to scholars and policy makers working on issues related to shareholder value and corporate governance. By specifying the mechanisms and conditions under which firms allocate internal power, the research could potentially help policy-makers better design interventions that promote transparency and accountability in corporate governance. Further, the study offers the first application of panel-based network analytic techniques (via stochastic actor-oriented modeling) to the study of dynamic interlocking corporate directorships. The data are gathered from public sources and the analysis will be made available to the scholarly and applied research through an online repository. The investigators will issue a press-release upon research completion through the University news services office.

Project Report

investigated the ways in which firm-level corporate governance provisions affect, and are affected by, board interlocks. Board interlocks are ties between public corporations that form when a director sits on the board of more than one firm or when an executive from one firms sits on the board of another firm. This project demonstrates that board interlocks spread information about corporate governance provisions but, at the same time, new interlocks form in accordance with dominant corporate governance orientations within firms. Some firms display more shareholder oriented corporate governance where boards and shareholders have greater power to scrutinize and monitor top managers. In other firms boards are weaker and management is more entrenched. Results demonstrate that managerial entrenchment is more robust in the cohesive core of the interlock network. That is, firms who have many interlocks, and especially interlocks to other highly interlocked firms, tend to exhibit more managerial entrenchment. Similarly, firms on the periphery of the network, with fewer interlocks, tend toward more shareholder oriented governance. Using longitudinal network panel data I demonstrate the actor-drive mechanisms that contribute to this pattern. The pattern emerges because 1) managerialist corporations tend to create new interlocks, 2) already highly interlocked corporations attract new interlocks, 3) managerialist governance provisions tend to spread across interlock ties - having an interlock with a managerialist firm increases the likelihood of adopting mangerialist provisions. These findings have clear implications for policy and research on why corporate governance varies substantially. Despite widespread calls to enchange shareholder rights in corporations, highly interlocked firms maintain a robust degree of managerial entrenchment.

National Science Foundation (NSF)
Division of Social and Economic Sciences (SES)
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Patricia White
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North Carolina State University Raleigh
United States
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