Decision making dynamics in corporate boards

TL;DR

This paper investigates how the structure of interlocking director networks influences corporate board decision-making, proposing models and measures to predict approval outcomes based on board topology.

Contribution

It introduces a new measure of interlock impact and applies two decision dynamics models to real corporate board data from 1999.

Findings

Interlock graph size correlates with decision approval probability

The proposed impact measure predicts decision outcomes effectively

Models fit well with observed board decision patterns

Abstract

Members of boards of directors of large corporations who also serve together on an outside board, form the so called interlock graph of the board and are assumed to have a strong influence on each others' opinion. We here study how the size and the topology of the interlock graph affect the probability that the board approves a strategy proposed by the Chief Executive Officer. We propose a measure of the impact of the interlock on the decision making, which is found to be a good predictor of the decision dynamics outcome. We present two models of decision making dynamics, and we apply them to the data of the boards of the largest US corporations in 1999.