You can’t have one without the other – the co-evolution of board networks and corporate strategic action
Steffen Triebel, Christiana WeberResearch on interlocking directorates shows that board networks are an important aspect of how companies make strategic choices with Mizruchi concluding that “the evidence that they do predict such [strategic] choices is overwhelming.” (1996, p. 292). Hence, a firms’ position in a board network should not be overlooked when analyzing why companies take certain strategic actions. While there is a lot of literature on network outcomes and the body of research on network dynamics is rapidly growing (Ahuja et al. 2012; Castro et al. 2014; Hernandez et al. 2015; Gulati and Gargiulo 1999), the interplay of these research streams is regularly overlooked. We build on the notion of Menon and Hernandez (2019) that “[t]he idea that network change can also be the result of alterations in the nodes is virtually missing from research on interfirm networks” (p. 2) and that strategic actions, such as acquisitions or divestitures, have the potential to rapidly change a network structure. Simply put, by acquiring a company, the acquirer gains access to its partnerships and contacts and will likely attempt to retain those that they rate useful. In such cases, the acquiring firm’s network undergoes drastic change by completing one strategic action. By neglecting these actions, scholars miss the analytic link strategic action and network evolution. However, Hernandez and Menon miss an important aspect – corporate strategic action does not only influence the network surrounding the firm, but the network itself influences how, why and when a company chooses to act on certain strategies. For example, board members witnessing how a company profits from acquiring a software service provider might take this knowledge into account and propose similar strategic actions at their focal firm. We argue that companies’ actions influence the network around them and that their network position will change the likelihood of these actions’ occurrence.
We address this issue by analysing the dynamics of a network of primary interlocks between large German companies and the co-evolution of strategic actions from 1998 to 2018, manually extracting information via annual reports. Our paper will answer the question to what extent strategic actions and network dynamics are interlinked by modeling their co-evolution with RSiena, allowing us to incorporate covariates at the actor level to explain network dynamics and model said covariates as dependent outcomes based on the network structure (Snijders et al. 2010). Our empirical data shows that the DAX30 company network is moderately interlinked and changing regularly, enabling us to interpret how organizational networks react to external factors, e.g. the euro crisis. Our study contributes to three major research streams: First, the analysis of dynamics and changes in company networks, second, the question how and why organizations decide on strategic actions and third, what role time plays in the actions of organizations.