In this Closer Look, we provide a detailed examination of the labor market for directorships among the senior executives of publicly traded U.S. companies with a focus on non-CEO-level executives. We find that directorships held by senior executives are concentrated among a small subset of individuals, primarily from large corporations. Senior executives who assume outside board obligations receive significant positive compensation and labor market benefits, suggesting that board service “credentializes” the executives—validating their skill as a leader and increasing their perceived market value.
We ask:
- How exactly does board service make an individual a better operating executive?
- Is greater board skill synonymous with greater skill as an executive? How transferrable are these experiences?
- In what situations is it beneficial for an NEO to join an outside board and when is it not?
- How much benefit does the firm receive that “sponsors” the executive?
- Is this a “win-win” where the executive gains experience and the firm gains value, or does the executive obtain most of the gain at the firm’s expense?