Toward a Social Capital Theory of Director Selection

• DOI: http://doi.org/10.1111/j.1467-8683.2008.00693.x
• Author: Yangmin Kim,Albert A. Cannella
• Published date: 01 July 2008
• Date: 01 July 2008

Toward a Social Capital Theory of

Director Selection

Yangmin Kim* and Albert A. Cannella, Jr.

ABSTRACT

Manuscript Type: Conceptual

Research Question/Issue: Our study evaluates the role of social capital in new director selection, board composition, and

board effectiveness.

Research Findings/Insights: We take steps toward a theory of director selection, explaining how social capital at the

individual-level inf‌luences director selection and at the group level inf‌luences board effectiveness. At the individual level,

social capital is def‌ined as the interpersonal linkages that director candidates have to others, both inside and outside the

f‌irm. At the group level, board social capital is an asset that includes both relations of directors and potential resources

arising from the relations.

Theoretical/Academic Implications: We argue that: 1) social capital can be divided into internal and external dimensions

according to its locus and function; 2) both internal and external social capital are associated with board composition

through director selection, although the causal logic differs considerably; 3) the inf‌luences of social capital on director

selection vary according to the context; and 4) both internal social capital and external social capital generate unique

resources that are important to board effectiveness.

Practitioner/Policy Implications: Our study informs practicing managers,because we describe how and why most research

and public discussion has emphasized the role of directors as monitors of managers and this has signif‌icantly downplayed

the role of directors in providing advice, counsel, and other resources to their organizations. We provide a strong logic for

seeking directors with specif‌ic types of social capital (internal or external) under specif‌ic contexts.

Keywords: Board Structure, Board Processes, Social Capital, Research Dependence Theory, Stewardship Theory

INTRODUCTION

Much has been written about boards of directors as an

important governance mechanism. Whereas numer-

ous studies have focused on the relationship between

board composition and f‌irm performance, fewer scholars

have focused on the autecedents of board composition

and attempted to link those autecedents to effective

governance (Hillman and Dalziel, 2003; Lynall, Golden, and

Hillman, 2003). Our study is designed to further under-

standing of corporate governance through a better under-

standing of the director selection process.

The popular news media is replete with examples of what

boards of directors should not be. Finkelstein and Mooney

(2003) refer to the factors inherent in these examples as the

“usual suspects,” including relatively few outside (indepen-

dent) directors, little or no share ownership by directors,

boards that are too large, and CEOs who also serve as board

chairs (i.e., CEO duality). However, rigorous research on

board effectiveness has not yielded much evidence that

these “usual suspects” have any meaningful connection to

f‌irm performance. For example, in a meta-analysis of 54

studies on board composition, Dalton, Daily, Ellstrand, and

Johnson (1998) found no substantive relationship between

board composition and f‌irm performance. In another

meta-analysis of 37 studies on board composition, Rhoades,

Rechner, and Sundaramurthy (2000) found only an inconse-

quential relationship between outside directors and f‌irm

performance. Finally, Finkelstein and Mooney (2003) found

no signif‌icant differences between high-performing com-

panies and low-performing companies in terms of number

of outside directors, director shareholdings, board size, and

CEO duality.

*Address for correspondence: School of Business Administration, Sogang University,

Seoul, Korea 121–742. Tel: (82)-2-705-8528; Fax: (82)-2-715-8505; E-mail: ymkim@

sogang.ac.kr

282 CORPORATE GOVERNANCE

Volume 16 Number 4 July 2008 © 2008 TheAuthors

Journal compilation © 2008 BlackwellPublishing Ltd

doi:10.1111/j.1467-8683.2008.00693.x