Do Interlocking Directors Have More Clout?

Of the many voices that compete for the chief executive's ear, one key source of influence is the board of directors, whose members also often sit on other company boards. These interlocking directors have firsthand, practical experience that can sway a CEO's strategic choices. But their influence wanes in the face of competing information.
       That is the finding of Pamela Haunschild, assistant professor of organizational behavior, who recently completed a detailed study of director interlocks and how they affect corporate behavior. Working with doctoral candidate Christine Beckman, Haunschild assessed the relative influence wielded by sources other than directors. Those sources included the business press and elite industry information forums, such as the Business Council and the Business Roundtable, where many chief executives share vital information on common issues.
       They found that not all interlocking directors' relationships have uniform importance. How influential interlocking directors were depended on the access the firm had to other information sources. The researchers also discovered that some directors were consistently more influential than others and found that interlocking directors have less influence in large firms and in those firms whose chief executive belongs to a Business Roundtable or Business Council. Haunschild suggests CEO membership groups and interlocking board directorships offer competing sources of information. After all, when you've got multiple sources of information, the effect of each is diluted.
       The advice of interlocking directors mattered more for those activities that get large amounts of business press coverage, such as controversial acquisitions. Haunschild suggests the business press and interlocking directorships offer complementary sources of information that increase each other's impact. The press was influential because it tended to enhance certain trends by focusing attention on information contained in other sources. Directors, for example, were likely to pay more attention to the actions of their interlock partners when those actions had been highlighted by the business press.
       Not surprisingly, the researchers also found that directors who sat on the boards of similar firms had more influence than those from dissimilar firms. That may occur because individuals more readily compare themselves with others who are like them.
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"When Do Interlocks Matter?: Alternate Sources of Information and Interlock Influence," Pamela R. Haunschild and Christine M. Beckman, GSB Research Paper #1380, November 1996