One hears complaints quite regularly about directors who allegedly are spread too thin because they serve on numerous corporate boards. Supposedly, busy directors are bad directors. An interesting recent paper challenges the conventional wisdom, arguing that busy directors can be beneficial:
Overboarded directors have been widely criticized as being ineffective. Yet, we argue that such directors offer unique advantages for younger firms, who place different demands on their boards than seasoned firms. Because management of newly public firms has little experience navigating public markets, they are likely to rely more heavily on directors for their experience and network of contacts. We posit that busy directors rank highly on both of these dimensions. Empirical results support this prediction, and contrary to prior research, we find no evidence that busy boards destroy firm value. Moreover, among firms where the hypothesized advantages of busyness are greatest, we document a positive relation between busy boards and firm value. Our findings challenge the conventional wisdom that multiple directorships are detrimental to all firms.
