The Board of Directors plays an important role in any organization. They provide oversight and insight to the CEO, help set strategic direction, and generally monitor decision-making to ensure that the firm acts in the best interests of its equity holders. A typical board has 10 to 15 people: the top management of the firm, and selected individuals outside the firm. Despite the importance of this group, very little research has examined the effect of particular kinds of directors on firm performance.
Typically, professors from key business schools, or other academic institutions with background relevant to the firm’s operations, have been popular additions to a Board of Directors. There are many reasons for their popularity. First, obviously, they have valuable knowledge. Second, they are often perceived by outside agencies as vigorous monitors of the firm’s activities. Third, professors may provide perceived legitimacy, as they seem to add credibility to the firm’s decision-making processes. Perhaps more centrally, conventional wisdom holds that firms with academics as directors would have more oversight on their boards, resulting in better performance and more robust accounting reports.
Three researchers recently set out to test these commonly held beliefs. They compared companies with academics on their boards to similar organizations that did not count professors among their directors. The results were interesting. The hypothesis that firms with academicians on their boards were likely to have greater vigilance was not supported. However, those firms that did have academician directors were perceived by the marketplace as being more valuable.
It appears that the real importance of professors on a Board of Directors is largely symbolic. The organization appears more legitimate to the marketplace when academics are on board, even though their presence does not result in more vigilant oversight of the organization.
So should you invite your favorite business school professor to join your board? Sure, if he or she has expertise and insight that you want. But if you’re looking for more stringent accounting, more careful oversight, or more vigilance in policing the firm’s activities, this research suggests you look elsewhere. Professors are valuable, just not in the ways you might think.
Atinc, G., Kroll, M., & Walters, B. (2013). An investigation of the impact of Academicians as Directors. Journal of Leadership & Organizational Studies, 20, 327-334.
