Structure behind principles: social selection mechanisms in corporate governance networks

The aim of this paper is to demonstrate that social relations at a corporate governance platform between members of supervisory boards, and between members of supervisory and executive board tiers can serve as an alternative viewpoint towards understanding mechanisms of social selection in corporate governance networks. The paper shows that through the lenses of social network analysis it is possible to identify and understand how the process of corporate governance member selection unfolds within companies, and how that selection process might have been potentially influenced by the cross-board relations, such as interlocking directorships.
To estimate network parameters and attribute effects of network tie emergence the paper utilizes exponential random graph models (ERGMs) on corporate governance data of Danish publicly listed companies. Econometric models are applied to estimate parameter statistics which serve further to explain tendencies of tie emergence.
The results of the study reveal that the process of selection of both supervisory boards and executive directors are interdependent. Also, the study showed that board members are more likely to select popular supervisory board members and top managers who have their expertise gained through multiple companies affiliated with multiple industries. However, these conditions for CEO selection apply only to the extent to which they have their experience gained from multiple companies but not multiple industries.
The study contributes both to practitioners and researchers. On one hand, it emphasizes that being a dynamic practitioner who is exposed to different companies affiliated with different companies and industries increases a visibility and attractiveness to companies’ boards. On the other hand, the paper shows that the research on board assemblage nowadays requires observing boards through networks instead of boards in isolation while also integrating executive tier.