Does the Rolodex Matter? Corporate Elite's Small World and the Effectiveness of Boards of Directors

Abstract

This paper investigates the impact of social ties on the effectiveness of boards of directors. When the CEO and a number of directors belong to the same social networks, the CEO is less likely to be dismissed for poor performance. The results are robust to different measures of performance and networks, consistent after controlling for CEO ability, and not due to connected boards' superior information. Socially connected CEOs are also more likely to find new and better employment after a forced departure. Evidence from the paper suggests that close social ties among board members impact the workings of the board of directors.

Women On French Corporate Board Of Directors: How Do They Differ From Their Male Counterparts?

“…Inspired by the work of Bond et al (2010) and Nguyen (2011Nguyen ( , 2012, among others, we use a dichotomous variable that takes the value 1 if the director attended a French or and international institution and 0 otherwise. To define these elite institutions, we refer, on the one hand, to the work of Nguyen (2011Nguyen ( , 2012.…”

“…To define these elite institutions, we refer, on the one hand, to the work of Nguyen (2011Nguyen ( , 2012. On the other hand, we use the Academic Ranking of World Universities (ARWU) in 2010 compiled by the Shanghai Jiaotong University.…”

“…In line with Nguyen (2011Nguyen ( , 2012 2008), among others, we use Chisquare analysis for the purpose of testing of our hypotheses. On the other hand, we use a logistic regression analysis in order to estimate the directors' characteristics that are attached to female directors compared to their male counterparts.…”

Role of Social Relations of Outside Directors with CEO in Earnings Management

“…According to (Dechow et al 1996), firms with greater dominance of management on the board are more susceptible to financial fraud. However, network ties also appeared to weaken corporate governance, leading to distortions in director's selection (Kuhnen 2009), CEO retention decisions (Nguyen 2012), and corporate investment (Guner et al 2008). Hallock (1997) found positive correlations between CEO compensation and the fact that a firm had an interlocking relationship with another firm.…”

From Playground to Boardroom: Endowed Social Status and Managerial Performance

“…Some managerial literature focuses on the effect of social networks on corporate governance. Nguyen-Dang (2012) finds that CEOs with external connections through cross-directorships are less likely to be fired following poor performance. Hwang and Kim (2009) analyze the effect of social connections on CEO compensation and find that CEO networks are a sign of bad governance.…”