Interlocking Directorates: A Strategy for Reducing Environmental Uncertainty

Maritime Women: Global Leadership

“…An interlocking directorate occurs when a person affiliated with one organization sits on the board of directors of another organization (Mizruchi 1996). Schoorman et al (1981) support that interlockings reduce uncertainty in the market environment of the firm via the following ways: (a) establishment of horizontal coordination between competitors; (b) establishment of vertical coordination; (c) knowledge and expertise of the Director; and (d) increased reputation. It has also been pointed out in the literature, that directors who serve on multiple boards, have an increased workload and cannot spend enough time on their monitoring role (Core et al 1999).…”

The Interface and Convergence of the Strategic Management and Organizational Environment Domains

“…Similarly, membership in a trade association (another form of interorganizational linkage) may provide member organizations with special services at low costs, along with legal and technical advice which may provide members an advantage in business negotiations with other organizations (Bresser, 1988). In addition, interorganizational linkages may be pursued to gain otherwise unavailable insights and information, as in the case of interlocking directorates (Schoorman, Bazerman & Atkin, 1981).…”

“…This arrangement occurs when a director or executive of one firm sits on the board of a second firm, or when two firms have directors who also serve on the board of a third firm. A large body of literature exists on this topic (i.e., Schoorman, Bazerman & Atkin, 1981). As an indication of the pervasiveness of this issue, Bazerman and Schoorman (1983) characterized interlocking directorates as "the most widely used environmental management strategy" (p. 206).…”

“…As a result of uncertainty reduction, firms with interlocking directorates may formulate policies that are more precisely in tune with their environments than competitors without a similar advantage (Palmer, 1983). The only apparent disadvantages associated with interlocking directorates is a partial loss of organizational autonomy and flexibility, along with the possibility of a legal challenge to the appropriateness of a particular interlock (Schoorman et al, 1981).…”

Board Composition and Relationship‐Specific Investments by Customers and Suppliers

“…Moreover, the disclosure of proprietary information about RSIs jeopardizes the supplier's-customer's competitive position as the information could be revealed to their rivals either directly by the firm or could be inferred by rivals through the actions of the firm (Li, 2002;Zhang, 2002;Li and Zhang, 2008). For these reasons, a supplier-customer may be less likely to serve on a firm's board if the supplier-customer invests more in relationship-specific assets.Alternatively, sharing information on the board could enable the supplier-customer to enhance the level of cooperation and coordination with the firm, and may also mitigate information asymmetry with respect to the firm's future prospects (Schoorman, Bezerman, and Atkin, 1981;Haunschild and Beckman, 1998;Gulati and Westphal, 1999;Dass et al, 2013). As a consequence, the supplier or customer is likely to avoid underinvestment in relationship-specific assets, which, in turn, increases the surplus available to be shared by the firm and the supply chain partner.…”