Interlocking Directorships and the Corporate-Community Connection: Evidence from the Antipodes
Interlocking directorships (where the directors of any one board of directors sit on two or more other boards – with such directors being defined as multiple directors) have been regarded as both potentially desirable (in providing such additional resources as market insight, expertise and wisdom that can assist boards in formulating strategy and in improving corporate performance) and potentially undesirable (in allowing covert passing of sensitive information, encouraging concentration of interests and priorities and raising the spectre of self-interest and conflicts of interest) (e.g. Webb, 2004). Literature has focused on the philosophical issues, frequency and issues associated with them. Writers have also concluded that board diversity can moderate the potentially problematic aspects of interlocks. Building on previous, related research into independent directors and their potential influence on corporate social responsibility (CSR) and sustainability policies, this paper explores a particular aspect of board composition – that of interlocking directorships – in seeking an answer to the question: Does the participation of independent multiple directors on company boards have an impact on the extent and focus of CSR and sustainability reporting or information provision, as reflected particularly in common themes, foci or levels of such reporting or information? If so, how does this impact play out? One argument is that where firms are members of major sustainability indices, director interlocks on their boards contribute social capital that is important in addressing sustainability, generating valuable resources that have a positive influence on the sustainability performance of the firm. A possible reason for this is the value attunement (regarding personal and stakeholder values) of these directors. Organisational culture could also be a major moderator of board and social value regarding attitudes toward CSR and sustainability, as could incentives (financial and non-financial) although financial incentives are thought unlikely to be a significant constructive influencing factor. The population selected for the study is the top 50 companies listed on the Australian ASX and New Zealand NZX indices. This choice not only permits insights into the nature and extent of the impacts of director networks in this particular context, but also compares such impacts between those in a developed economy with a small concentrated capital market and director pool (New Zealand) and those in a larger more dispersed economy (Australia). The paper has implications for director selection and appointment as well as adding to emerging theory on board capital and its effects on firms.