Social Networks in the Boardroom

By Francis Kramarz, David Thesmar. Social Science Research Network, 2013

238 citations recorded by the source corpus.

This paper provides empirical evidence consistent with the facts that (1) social networks may strongly affect board composition and (2) social networks may be detrimental to corporate governance. Our empirical investigation relies on a unique dataset on executives and outside directors of corporations listed on the Paris stock exchange over the 1992-2003 period. This data source is a matched employer employee dataset providing both detailed information on directors/CEOs and information on the firm employing them. We first find a very strong and robust correlation between the CEO's network and that of his directors. Networks of former high ranking civil servants are the most active in shaping board composition. Our identification strategy takes into account (1) differences in unobserved directors' "abilities" and (2) the unobserved propensity of firms to hire directors from particular networks, irrespective of the CEO's identity. We then show that the governance of firms run by former civil servants is relatively worse on many dimensions. Former civil servants are less likely to leave their CEO job when their firm performs badly. Secondly, CEOs who are former bureaucrats are more likely to accumulate directorships, and the more they do, the less profitable is the firm they run. Thirdly, the value created by acquisitions made by former bureaucrats is lower. All in all, these firms are less profitable on average.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/2c14dc573e27c78a11dab6424727246dad2b87cb

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Citations in the corpus

Do Better-Connected CEOs Innovate More? (2014, unknown): “Ang, Nagel, and Yang (2010) ﬁnd that well-connected CEOs receive compensation in excess of what is attributable to economic and governance factors, and Kramarz and Thesmar (2007) show that turnover–performance sensitivity declines with CEO and board connections.”
Board Interlocks and the Propensity to be Targeted in Private Equity Transactions (2010, background): “In an analysis of social networks in the boardroom of a large sample of French companies, Kramarz and Thesmar (2006) find that CEOs who were former civil servants were more likely to accumulate directorships (thus creating multiple firm-to-firm interlocks), but were also more likely to run less…”
Social Networks, Employee Selection, and Labor Market Outcomes (2016, background): “The patterns also suggest that non-cognitive abilities are more relevant for jobs with a low skill content which is well in line with the notion that cognitive skills primarily are linked to productivity within high skilled jobs, and that non-cognitive skills are relatively more important within les”
The Cost of Political Connections (2018, unknown): “Kramarz and Thesmar (2013) provide a more systematic study of the relationship between political connections and board composition.”
Is Social Capital a Good Concept? (2012, unknown): “…empirics, political governance research, immigration studies, the sociology of education, labor economics and happiness studies (Whiteley 2000; Zak and Knack 2001; Knack 2002; Portes 1998, 2000; Kramarz and Thesmar 2006; Bjørnskov 2003, 2008; Helliwell 2003; Helliwell and Putnam 1995).”