Interlocking directorships and firm performance in highly regulated sectors: the moderating impact of board diversity

Abstract

1 We should like to express our gratitude to ESRC for funding this research under grant number RES: 062-23-0782 (2008-2011) and to our colleague, Tim Miller, for his skilful assistance during the data processing stage. Interlocking directorships and firm performance… 2Interlocking directorships and firm performance in the highly regulated sectors: The moderating impact of board diversity ABSTRACTInterlocking directorships are a pervasive element of the corporate landscape. Academic literature documents many examples of spreading business practices and strategic outcomes through this form of inter-organizational connectedness. Yet, the findings on the long debated relationship between interlocking ties and firm performance remain mixed. In this study, we provide an analysis of this relationship on the basis of a sample of UK-listed financial and utility companies across a ten year period. Our findings provide support to the busyness hypothesis of interlocking and indicate that when used in excess, interlocking is likely to compromise the attention of directors on the focal company board. Moreover, in reconciliation of the competing views of the resource-dependence and agency theory, we propose a contingency-based model of interlocking with board diversity as a moderator of the baseline interlocking-firm performance relationship. Our results render support to the assertion that the potential for dissemination of ideas and innovations resides in the interlocking ties. However, boards need to be receptive to that knowledge exchange for this transfer to take place and this process may be facilitated by the level of and changes in board diversity. This study contributes to research into the consequences and implications of interlocking directorships and demonstrates that the search for the moderating and mediating variables represents a step in the right direction. words

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