Social capital as a new board diversity rationale for enhanced corporate governance

• Pages: 425-439
• DOI: https://doi.org/10.1108/CG-02-2017-0035
• Published date: 07 February 2018
• Date: 07 February 2018
• Author: Darlene Booth-Bell
• Subject Matter: Corporate governance,Strategy

Social capital as a new board

diversity rationale for enhanced

corporate governance

Darlene Booth-Bell

Abstract

Purpose – The benefits of board diversity are often categorized into five distinct business rationales:

talent rationale, market rationale, litigation rationale, employee relations rationale and governance

rationale. However, if resource dependency theory’s focus on the director’s ability to secure important

resources for the firm is considered, social capital as a viable additional rationale for board diversity can

also be considered. The purpose of this paper is to argue that diverse members of the board are likely to

have social capital that differs from non-diverse members of the board. Consequently, that diverse social

capital can bridge the board to new resources for advice and counsel, legitimacy, channels for

communication and access to important external elements, thus making a strong argument to be

included as a rationale for board diversity.

Design/methodology/approach – It is intended to provide a conceptual discussion on whether

enhancing the board’s social capital is perhaps a viable and overlooked rationale for board diversity.

Findings – Consistent with the other five rationales for board diversity, this analysis suggests that social

capital should be considered as a sixth rationale for board diversity. Social capital serves a role in

governance and rises to the standard of other rationales for board diversity.

Practical implications – Boards may not recognize that social capital is a strategic resource and

sufficiently diverse groups such as women and minorities may be more likely to contribute non-

overlapping social capital networks, which may translate into greater external influence and thus

additional resources for the firm. This paper may help to influence the viewpoints of directors on who is

valuable as a board member.

Originality/value – Existing board diversity rationales do not include social capital as a primary rationale

for board diversity. It may be possible that social capital becomes a legitimate sixth rationale for board

diversity.

Keywords Social capital, Corporate governance, Board diversity, Resource dependency

Paper type Conceptual paper

Introduction

This paper is intended to provide conceptual discussion on whether enhancing the board’s

social capital is a viable and overlooked rationale for board diversity. The goal of the paper

is to provide a theoretical contribution to existing social capital and board diversity literature

(Kim and Cannella, 2008; Westphal and Stern, 2006; Burt, 2002; Peng, 2004) and provide a

discussion of how corporate directors, and their social capital, provide additional resources

to the firms they govern. The paper is organized into four sections to accomplish this goal.

The first section includes a brief historical discussion of corporate governance initiatives

and a summary of significant corporate governance reports in the USA and the UK. The

second section presents several arguments and established rationales for board diversity.

In the third section, the paper discusses social capital and how social capital may provide

benefits to the board. Lastly, it identifies and discusses how social capital from diverse

Darlene Booth-Bell is

Assistant Professor at

Coastal Carolina University,

Conway, South Carolina,

USA.

Received 13 February 2017

Revised 15 December 2017

Accepted 23 December 2017

DOI 10.1108/CG-02-2017-0035 VOL. 18 NO. 3 2018, pp. 425-439, © Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 425