Social capital of directors and corporate governance: A social network analysis
Journal
The Brooklyn Journal of Corporate, Financial and Commercial Law
Journal Volume
11
Journal Issue
2
Pages
343
Date Issued
2017
Author(s)
Niu, Zihan
Abstract
This article examines how a director’s social capital might affect his behavior, the board’s performance, and corporate governance, as well as the potential normative implications of the director’s social network. We argue that the quality of
board performance could be improved where the social network closure within the board is high and there are many non-redundant contacts beyond the board. Network closure can improve trust and collaboration within a board, while external contacts may benefit a company with more diverse sources of information. Moreover, different network positioning leads o the inequality of social capital for directors. With more social capital, a director is more likely to be powerful and influential on the other directors on the board. Regarding the fulfillment of their monitory function, we suggest that independent directors would be unlikely to compromise their monitory liability when they have more social capital on the board than the managerial directors. We demonstrate our theory with an analysis of corporate boards of companies listed
in Hong Kong. Although it is not easy to incorporate social network analysis into legislation or corporate governance code, our theory may further the understanding of the function and effectiveness of different board structures and provide some insights into the future selection of directors by a company within an existing legal framework.
Type
journal article