The Effect of Director Interlocks on Firms' Adoption of Proactive Environmental Strategies

• Author: Vera Ferrón‐Vílchez,J. Alberto Aragón‐Correa,Natalia Ortiz‐de‐Mandojana,Javier Delgado‐Ceballos
• Date: 01 March 2012
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00893.x
• Published date: 01 March 2012

The Effect of Director Interlocks on Firms’

Adoption of Proactive Environmental Strategies

Natalia Ortiz-de-Mandojana*, J. Alberto Aragón-Correa,

Javier Delgado-Ceballos, and Vera Ferrón-Vílchez

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: We examine whether director interlocks enable or inhibit a f‌irm’s adoption of a proactive

environmental strategy. Specif‌ically, using resourcedependence theory, we argue that director interlocks with suppliers are

linked to varying likelihoods that a f‌irm adopts a proactive environmental strategy, depending on the relation between the

provided resources and the environmental approach.

Research Findings/Insight: Based on a sample of US electric f‌irms, our results show that director interlocks with f‌irms

providing knowledge-intensive business services are positively linked to the adoption of proactive environmental strate-

gies. However, director interlocks with f‌irms providing f‌inancial resources and fossil fuel are negatively related to the

adoption of these strategies for our sample.

Theoretical/Academic Implications: Board linkages may enable and inhibit proactive environmental strategies. We con-

tribute to resource dependence theory by offering empirical evidence that the reduction of uncertainty about critical

resources by director interlocks may either make business change easier or constrict a f‌irm’s autonomy, making change

more diff‌icult.

Practitioner/Policy Implications: The inf‌luence of interlocking directors varies depending on the type of resources that

director interlocks transfer to their organizations. As a result, the selection of specif‌ic director interlocks can become very

important to the strategic goals of the f‌irm. Regulators should continue to pay attention to potential risks for other

stakeholders from director interlocks.

Keywords: Corporate Governance, Board of Directors, Director Interlocks, Proactive Environmental Strategy, Resource

Dependence View

INTRODUCTION

The f‌inancial scandals atthe beginning of the twenty-f‌irst

century revealed that corporate boards need to partici-

pate more actively in their organizations’ strategic decisions.

Efforts in this direction are ref‌lected in the increasing pro-

liferation of codes of good governance in most countries

(Aguilera & Cuervo-Cazurra, 2009; Tricker, 2009). Yet, the

literature has only partially examined how board character-

istics may play into this role (e.g., Carpenter & Westphal,

2001; Golden & Zajac, 2001). In this paper, we focus our

attention on the inf‌luence of director interlocks, that is,

directors who simultaneously belong to the boards of several

f‌irms. Director interlocks have an important and growing

presence in US f‌irms. In fact, the Financial Times recently

noted that 55 percent of directors of US f‌irms listed in the

S&P 500 index serve on more than one board (Masters,

2009). The increasing relevance of these webs of relation-

ships has even resulted in specif‌ic regulations. For example,

in the electric industry, the US Federal Energy Regulatory

Commission (FERC) established new rules regarding the

requirement for disclosing and authorizing director inter-

locks, with violators incurring both civil and criminal pen-

alties (Annual report of interlocking positions for the US

electric industry, 2006, FERC Form no. 561). Prior research

shows a broad debate on the consequences of director inter-

locks, generally calling attention to the potential conf‌lict of

interest of the directors involved (Bazerman & Schoorman,

1983).

*Address for correspondence: Natalia Ortiz-de-Mandojana, Department of Business

and Management,Economics and Business School, University of Granada, Campus de

Cartuja S/N, C. P.18071, Granada, Spain.Tel: 34-958249597; Fax: 34-958246222; E-mail:

nortiz@ugr.es

164

Corporate Governance: An International Review, 2012, 20(2): 164–178

© 2011 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00893.x