In this Closer Look, we examine the formal and informal advice networks that corporate directors rely on to improve decision making and performance. We find directors are active consumers of advice. They rely on paid advisors particularly in their early years to acquire new skills as they learn to oversee management and function in a boardroom setting. They turn to unpaid advisors to formulate viewpoints on big picture questions of strategy, culture, and governance—applying the best of the insights from both sources to improve corporate outcomes. While traditional governance models typically view directors as independent experts who bring their own skills and experience to the board room, the evidence suggests directors may function as nodes in broader networks of information and expertise.
We ask:
- How much is director effectiveness determined by individual knowledge versus knowledge they access through personal and professional networks?
- How should researchers think about the value of a director's network as a form of social capital?
- How should boards think about the quality of a director candidate’s network during the recruitment process?
- Under what circumstances do advice networks improve decision quality, and when might they create risks of groupthink, conflicts of interest, or information leakage?
