Making relationships matter: Director interlocks and fortune 500 performance, 1996-2007

Abstract

Board memberships are critical to Fortune 500 performance, providing access to sectoral knowledge or resources, management expertise, and capital. How can companies strategically target new directorships to maximize financial returns? We explore how director interlocks impact Fortune 500 ranking performance from 1996 to 2007, combining traditional financial indicators with board membership composition through social network analysis. We benchmark how key business drivers influence Fortune ranking, and then employ social network metrics of centrality and structure to show how interlocking directorships affect outcomes. We then subsequently perform dynamic panel regression techniques to estimate financial impact across sectors. Strategically selecting board memberships has a large potential return on investment, different sectors and ranking level, which can impact firms’ bottom lines by billions of dollars and tens of Fortune 500 ranking points.