Which board members contribute most to company performance? Tuesday, 28 June 2016
What does it take for a board member to contribute a company’s policy and performance? PhD graduate Philip Fliers of Rotterdam School of Management, Erasmus University (RSM) studied the biographies and networks of Dutch board members and analysed how their companies performed between 1903 and 2003. He found that board members with the most connections and board positions aren’t the ones that add the most value to the company. What does matter, he discovered, is that board members have the right experience, relevant background experience, and social capital.
To have an impact on company policy and performance, board members use their personal and business network, but also draw on their background and experience as entrepreneur; these qualities are collectively described as ‘social capital’, says Fliers. To attribute impact of individual board members to company performance, Fliers combined statistical analysis with biographical descriptions of influential board members.
He focused his research on what he calls ‘big linkers’, directors who were appointed to at least two supervisory or executive boards in any given year, and who had held over 10 positions during their career. He did this for exchange-listed public firms in the Netherlands between 1903 and 2003.
Big linker effect
His results show that, over the century, the influence of individual board members on decision making and company performance varied between 4 and 11 per cent. The effect of big linkers was stronger, he found, after times of economic turmoil, such as the end of the 1920s and the 1980s.
Fliers also found the average big linker held, on average, 25 board positions. Interestingly, he discovered that those with the most board appointments who play a very central role in their corporate networks do not contribute as much to firm performance as might be expected by the strength of their network. This is in line with the expectation that in order to be an effective board member you need to have time to do it properly, Fliers says.
Fliers also discovered that those big linkers who contributed most to corporate performance often brought a particular kind of management experience to the company. They were primarily directors of non-financial corporations also holding supervisory positions at various banks. Fliers says this might help with securing funds for the companies they supervise, which in turn could improve company performance.
Looking at their backgrounds, Fliers also discovered that effective board members more often come from merchant families. Coming from a noble background was no guarantee for becoming an influential board member.
Appointing board members
Fliers says the results of his study provide companies with pointers when looking for new board members. Companies should not aim to appoint board members with the longest company list on their CV. Instead they should try to find well-connected managers with the right experience that can perform a role that can be of strategic value to the company, he concludes.
Download: Philip Flier's thesis
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Photo CC (AT NC): IanVisits