THE DARK SIDE OF EMBEDDEDNESS : AN EXAMINATION OF THE INFLUENCE OF DIRECT AND INDIRECT

This study explores the influence of the social network of board interlocks on the creation of strategic alliances between firms. Our theoretical framework introduces the notion that board interlock ties may be heterogeneous, depending on the nature of the CEO/board relationship that underlies the tie, and examines how the influence of such ties could have either a positive or negative influence on alliance formation. The role of both direct interlocks between firms and indirect third-party ties in interlocking directorate networks were examined with a unique dataset that combines extensive archival data on board interlocks and strategic alliances with primary survey data on management-board relationships from a large sample of top managers and outside directors. We found that board interlock ties to other firms can either increase or decrease the likelihood of alliance formation, depending on the content of the particular relationships that exist between CEOs and outside directors (who serve as CEOs at other firms). CEO/board relationships characterized by independent board control appear to reduce the likelihood of alliance formation by prompting distrust between corporate leaders, while CEO/board cooperation in strategic decision making appears to promote alliance formation by enhancing trust in the relationship. The effect of direct interlock ties are further amplified by the third-party interlock ties in which they are situated. Implications of these findings for the literatures on social networks, corporate governance, and board interlocks are discussed.

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