N°18-28: CEO Networks and the Labor Market for Directors

Directors are more likely to obtain additional directorships, especially at prestigious firms, if the CEOs of their current boards are well-connected. Recommended directors do not become beholden to the CEO, as CEO compensation is unaffected and an analysis of appointment announcement returns and director election results show that shareholders are unconcerned by such recommendations. Instead, reciprocity is an important determinant because CEOs are more likely to recommend their directors if they recently received help from their network filling vacant board positions. Overall, there is little evidence that network recommendations of directors lead to inefficiencies in the director labor market.