Board of directors and firm resilience from a social capital perspective

Abstract

While a vast amount of literature demonstrates the importance of having a board of directors (BoD) for positive firm outcomes, our empirical study based on a wide sample of family firms suggests this is not always the case, and that its impact on firm resilience is contingent on family social capital (FSC). When FSC is high, family members focus on internal governance and frequently reduce the BoD to a symbolic role. Thus, a BoD represents a cost rather than a benefit. In contrast, a BoD is very effective when a firm is poor in FSC and the family firm most resembles a non-family firm. Consequently, the question is not whether to have a BoD but in which case it can benefit the family firm. Our analysis concludes that family members' involvement in the BoD per se does not enhance a firms' resilience as they have other informal mechanisms that play a similar role. However, executive and independent directors as key board members lead us to conclude that, together with the FSC, the composition of the board affects family firm resilience.