Board Diversity, Regulatory Violations and Interlocking Directorates: A Brokerage Approach
Roy Barnes, David LukeWith the publication of Page’s The Difference (2008), much research has been conducted examining the link between organizational diversity and outcomes. Relevant to the focus of this paper and the role of diversity within corporate boards of directors, a number of recent papers have shown that corporate board diversity increases financial performance (Vahdati, Zulkifli and Zakariahas, 2018; Rose, Munch-Madsen and Funch, 2000; Yasser, Al Mamun and Seamer 2016; Bernile, Bhagwat and Yonker,2016). Regarding innovation, Giannetti and Zhao (2019) found diversity of ancestral origins on corporate boards leads to more numerous and cited patents. In this paper, we examine the relationship between board diversity (sex and race) and the incidence of regulatory violations among Fortune 100 corporations in 2005 and 2014. The paper begins by developing a brokerage method for capturing diversity that includes not only the immediate board of directors, but also the potential benefit from diverse ties formed through interlocking directorates. Utilizing this method, the paper then goes on to compare the incidence of regulatory violations. We hypothesize that greater board diversity will be associated with lower levels of regulatory violations across these two time periods.