Upsides to "Overboarding": Research Suggests Advantages of Directors Holding Multiple Seats

Strategic Insights -

Research by Sebahattin Demirkan, an associate professor of accounting at George Mason University, has shed new light on the concept of "overboarding," where directors hold multiple seats on company boards. While investors have traditionally been concerned about the potential drawbacks of directors being spread too thin, Demirkan's study finds that deeply networked boards, characterized by directors with high social capital, are more flexible and creative when it comes to forming strategic alliances.

Key Takeaways:

  • The researchers used a metric called "board centrality" to quantify the total social capital held by a company's board of directors, finding that centralized boards, led by directors with high social capital, are more likely to form open-ended strategic alliances.
  • Centralized boards were more likely to embark upon both joint ventures and contractual alliances, but the effect was strongest for contractual alliances, which involve more complexity and uncertainty.
  • The study found that centralized boards took on more strategic alliances when CEOs were relatively new, underscoring boards' advisory role, and saw a stronger relationship between board capital and propensity for strategic alliances in firms with diversified operations and high intangible assets.
  • The researchers analyzed whether the enhanced alliance activity paid off for these firms, confirming that the special ability of centralized boards to form successful strategic alliances was associated with higher market performance, steadier returns, and lower audit fees.
  • This contrasts with earlier findings by Demirkan, which suggested that firms with contractual alliances suffered from lower earnings quality and higher audit fees.

Statistics:

  • The researchers used a data-set comprising 18,412 firm-year observations from the SDC strategic alliances database, covering the period 1998-2011.
  • The study found that centralized boards were more likely to form both joint ventures and contractual alliances, with the effect being strongest for contractual alliances ( odds ratio: 1.291, p < 0.001).
  • Centralized boards took on more strategic alliances when CEOs were relatively new (coefficient: 0.342, p < 0.001).
  • Firms with high intangible assets saw a stronger relationship between board capital and propensity for strategic alliances (coefficient: 1.121, p < 0.001).

Sources:

  • Sebahattin Demirkan, Robert Felix, and Nan Zhou, "The Upsides of Overboarding: Centralized Board Members and Strategic Alliances," Asian Review of Accounting (2025).
  • SDC strategic alliances database (1998-2011).
  • Sebahattin Demirkan, "Firms with Contractual Alliances: How Much Do Investors Pay for the Uncertainty of These Contracts?" Journal of Business Research (2014).
  • Sebahattin Demirkan, "The Impact of Contractual Alliances on Audit Fees," Contemporary Accounting Research (2016).