Survival of the Embedded: Expelling and Embedding Forces on Members of the Corporate Elite

• Author: Andrew J. Ward,Daniel C. Feldman
• Date: 01 May 2008
• Published date: 01 May 2008
• DOI: http://doi.org/10.1111/j.1467-8683.2008.00683.x

Survival of the Embedded: Expelling and

Embedding Forces on Members of the

Corporate Elite

Andrew J. Ward* and Daniel C. Feldman

ABSTRACT

Manuscript Type: Conceptual

Research Question/Issue: Prior research on corporate elites has focused on how interlocking directorships serve to create

inter-organizational linkages and on what happens when board members lose their seats and those linkages are broken.

Rather than focusing on the ties in corporate networks, here we focus on the nodes of these networks, the individual

members of boards of directors.

Research Findings/Insights: Weidentify the conditions under which a director will be able to retain his/her board seat even

after he or she loses the executive position that provided initial entry onto the board.

Theoretical/Academic Implications: The case of outside directors who have lost their executive positions in their home

organizations providesan excellent opportunity to examine two competing theoretical perspectives: the inter-corporate and

intra-class perspectives on corporate elites.

Practitioner/Policy Implications: Following the passage of the Sarbanes-Oxley Act (2002), directorships are demanding an

increasing amount of directors’ time and directors without full-time executive positions elsewhere can actually devote more

energy to board activities. An unintended consequence of this legislation is a potential decrease in the number of directors

who hold several board seats simultaneously. This may reduce the eff‌iciency of information f‌low across organizations and

slow the diffusion of innovation.

Keywords: Corporate elites, corporate directorships, departing CEOs, interlocking directorships

INTRODUCTION

Corporate elite networks in general, and interlocking

directorships in particular, have inf‌luenced the diffu-

sion of corporate practices in numerous ways. These include

the adoption of organizational structures (Palmer, Jennings

and Zhou, 1993), the implementation of quality standards

(Chua and Petty, 1999), the migration of stock exchange list-

ings (Rao, Davis and Ward, 2000), the formation of investor

relations departments (Rao and Sivakumar, 1999), the levels

of acquisition activity (Haunschild, 1993; Palmer and Barber,

2001), the payment of acquisition premiums (Haunschild,

1994), the adoption of poison pills (Davis, 1991), and the

amount of cooperation during takeovers (D’Aveni and

Kesner, 1993). Taken as a group, these f‌indings suggest that

the corporate elite network is a powerful entity, that mem-

bership within the corporate elite is an important sourceand

indicator of inf‌luence (Useem 1984), and that gaining and

retaining membership in the corporate elite is highly benef‌i-

cial for directors’ careers (Pfeffer and Salancik, 1978).

Research on how membership in the corporate elite network

is gained and retained is driven by two theoretical view-

points, commonly called the inter-corporate and intra-class

perspectives.

At its core, the inter-corporate perspective views an indi-

vidual’s entry into the elite as dependent upon his or her

hierarchical position in a f‌irm. This view contends thatboard

memberships represent important connections between

f‌irms (Burt, 1992, 1983). Interlocking directorships are

viewed as mechanisms used by organizations to control or

co-opt other f‌irms on whom they are dependent in order

to gain more resources or information about the environ-

ment (Pfeffer and Salancik, 1978; Haunschild and Beckman,

1998; Podolny, 2001; Jensen, 2003) or reduce uncertainty

*Contact Author: Andrew J. Ward, Department of Management, Terry College of

Business, University of Georgia, Athens, GA 30602. Tel: 706-542-6194; Fax: 706-542-

3743; e-mail: ajward@terry.uga.edu.

SURVIVAL OF THE EMBEDDED 239

Volume 16 Number 3 May 2008

© 2008 TheAuthors

Journal compilation © 2008 BlackwellPublishing Ltd

doi:10.1111/j.1467-8683.2008.00683.x