Old-boy network's power exposed
Soon it could take more than a secret handshake to swing
boards' decisions.
4 October 2002
PHILIP BALL
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| Cliques make it hard to keep things above
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Cliques of well-connected businessmen can easily corrupt or distort
corporate board decisions, but now a team of scientists say they can assess how
much power old-boy networks have over boardroom meetings.
"A well-connected lobby of a minority of directors can drive the
decision of the board," say Stefano Battiston of the Ecole Normale Supérieure
in Paris and co-workers1. But they think that it is
possible to predict the chances that a board will agree with the opinion of
such a lobby.
If this is so, the power of the lobby can be assessed and the changes
needed to break its dominance identified. It all depends, say the researchers,
on how many members of a board also sit together on other boards.
It's a common situation. Almost 100 years ago Louis Brandeis, a judge in
the US Supreme Court, spoke of a "financial oligarchy controlling the business
of the country". Not much has changed. Directors and board members of large
companies form a kind of social network in which many individuals sit with at
least one other person on more than one corporate board.
Battiston's research reveals that four of the directors of the Bank of
America Corporation, for example, each sit with one of the other three on at
least one outside board. Researchers argue that board members who are
'interlocked' in this way are more likely to influence one another's opinion
than those who never see one another outside a single boardroom.
It goes without saying that cliques such as this, if they are large
enough, can engineer a board decision in their favour. But just how great is
this power, if the clique doesn't have a majority? And how much does that
depend on the way decisions are reached?
Battiston and colleagues have devised a model that describes the voting
behaviour when boards have to make some decision. Typically, this entails the
chief executive officer (CEO) proposing a certain strategy and the other board
members deciding whether or not to support it. Each member is assumed to be
influenced by the decisions of others if they sit on another board together;
otherwise, they decide for or against independently.
By considering various possible networks in a board of ten members (a
typical size for a corporation), the researchers show that each network can be
assigned a 'force' which measures the likelihood that the board will approve
the CEO's proposal. If the board has, say, three links between members (a link
indicates that they sit on an outside board), then 40% of the possible networks
have at least a 75% chance of approving the proposal. For a non-interlocked
board - one with no old-boy network - this chance is close to 50:50, as it
should be. In other words, even a small amount of cliquiness can make a big
difference.
Awareness of the power of cliques could help to offset their influence,
Battiston's team suggests. But busting up old-boys' networks might not be a
solution. The way in which people get onto boards in the first place may
propagate the trend: an existing board member may often recommend candidates he
(rarely she) already knows through joint positions on another board - and
probably ones that share his views.
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