International Development and Programs (Development Work) - International Development and Programs (Development Work)

Bezemer. P., Maassen, G.F., Van den Bosch, F.A.J. & Volberda, H.W. (2008). Assessing corporate responses to changing board network expectations in the Netherlands, paper presented at the EURAM Conference, Ljubljana, May 2008. This paper was also presented at the Norefjell Workshop, Castel di Sangro, January 2008.

Assessing Corporate Responses to Changing Board Network Expectations (143.91 kB)

While scholars often emphasize a positive relationship between board ties and corporate performance, financial market regulators are increasingly being concerned that board ties create a social insular elite network in which members are loyal towards each other and not necessarily seek to maximize shareholder wealth. Therefore, corporate governance
reform  initiatives  seek  to  limit board connectivity among listed corporations. However, little is known about how listed corporations cope with societal expectations to reform their board networks.

We adopt an Institutional Theory perspective to examine the extent to which companies have broken board ties. Using longitudinal data on 75 top-100 listed corporations in the Netherlands from 2001 to 2005, we find that corporations with large board  networks  have  been  affected most. Meanwhile,  the  largest  and most  prestigious firms  have  become  structurally  disconnected from the rest. Moreover, we  observe  that corporations with exposure to international  financial markets and participation in board reform initiatives partially nullified the perceived negative influence of market regulation.

In conclusion, our study  indicates the need for studies that go beyond mere compliance, i.e.  research  that unravels  the complex processes associated with corporate  responses to board reforms and changing governance expectations.