An Upside To Having Busy Board Members

Companies want smart, experienced board members. Unfortunately, the best candidates are in high demand, and some serve on multiple boards simultaneously.

No firm gets their undivided attention, which limits the potential benefits of landing a big name. But new research, co-authored by Emanuel Zur at the University of Maryland’s Robert H. Smith School of Business, explores another factor that works in the opposite direction.

“The busiest directors are also the best connected,” Zur says. “Multiple directorships can foster these connections and facilitate the flow of information and resources across boards.”

The study, accepted in The Accounting Review, tests the interplay between busyness and connectivity. “Multiple directorships may enhance firm performance through board connections, but may also hinder firm performance through time constraints,” the authors write.

To isolate the variables, the authors look at mergers and acquisitions that trigger the dissolution of the target firms’ boards. When this situation occurs, displaced boards members with multiple directorships suddenly have more time on their hands. They can get involved on more committees and contribute in other ways on the boards where they continue to serve.

At the same time, displaced board members suddenly have less access to resources and information. They are less busy, but also less well-connected.

Zur and his co-authors look at the effects on performance at the firms where displaced board members continue to serve. Specifically, the authors assess financial reporting quality and strategic advising, measured by three proxies: research and development, return on research and development, and investment residuals.

Overall, the authors find that firms benefit when a board member suddenly has more time to focus on the specific needs of that firm. However, the benefits fade when a highly connected or central figure at the target firm suddenly gets displaced following a merger or acquisition.

“For firms losing access to relatively more board connections, the negative effects of the loss of access to board resources and information cancels out the benefits of the decrease in busyness,” the authors conclude.

Besides Zur, study contributors include Anna Bergman Brown from the University of Connecticut and Jing Dai from Baruch College at CUNY.

Read more: Too Busy or Well-Connected? Evidence from a Shock to Multiple Directorships is featured in The Accounting Review.