They're more likely to be promoted as first-time CEOs and to get a raise, even without a promotion, write Steven Boivie, Scott D. Graffin, Abbie G. Oliver and Michael C. Wither

Boivie, Steven

Graffin, Scott D.

Oliver, Abbie G.

Withers, Michael C.

LSE Research Online

10/20/2016Serving on corporate boards plays a vital role in the careersuccess of executivesblogs.lse.ac.uk /businessreview/2016/10/20/serving-on-corporate-boards-plays-a-vital-role-in-the-career-success-of-executives/Image by Unsplash, under a CC0 licenceWhen Warren Buffett retired from Coca-Cola’s board in 2006, he said he no longer had the time for all of theretreats, travel, reading, meeting prep time, and committee meetings that were necessary for the role. In addition tothe time requirements, board service also comes with reputational risks. For example, the current board members ofWells Fargo will most likely feel lasting repercussions from the questionable business practices at the firm that haveled to a $185 million settlement, a public hearing, and the ultimate resignation of their CEO. More than 25 years ago,William Sahlman, likened board service to driving without a seatbelt in a Harvard Business Review article titled“Why Sane People Shouldn’t Serve on Public Boards.” That article feels even truer today. So given the costs and therisks, it is a wonder anyone serves at all.But given that boards do not seem to have major problems getting people to sit on them, it appears that boardservice must have some benefits. Otherwise why would busy executives continue to agree to sit on boards?Consider the example of Jeffery W. Yabuki, who was the COO of H&R Block Services Inc in 2003. In 2004, he joinedthe board of Petsmart Inc., and later MBIA Inc. Just two years later Yabuki was appointed the CEO of Fiserv, aFortune 1000 firm. Or for example, executive Glenda Jane Flanagan joined the board of Credit Acceptance Corp. in2004, and in 2005, her total compensation from her home firm, Whole Foods Market Inc., increased by over$300,000. For both, it appears that board service may have played a vital role in their career success.Unpacking how board service may benefit corporate executives was the motivation of our recent research. In aneffort to explore executives’ motivations for serving on boards, we looked at how board service is evaluated andrewarded in the executive labor market. Specifically, we studied whether board service increased an executive’slikelihood of becoming a CEO and/or receiving a pay increase or other promotion.We believe that board service can accelerate an executive’s career for two main reasons. First, sitting on a boardserves as an important certification or “stamp of approval,” for an executive. Being chosen to serve on a board may1/3indicate that an executive has particular skill or expertise. Second, board experience provides an opportunity for anexecutive to gain skills, connections, and familiarity with the responsibilities of serving as a CEO. As Mary Cranston,former CEO and Chairman of Pillsbury, LLP explains, “being on that board really helped me develop as a CEObecause I had another CEO to watch. It was an incredible leadership school for me. On a board you’re together alot, and you’re working on problems together and you have a shared fiduciary duty, so it creates very tight bonds offriendship.  It’s a very interesting dynamic that I really didn’t see at all until I got on boards.”We examined roughly 2,140 top executives in S&P 1500 firms from 1996-2012 to test our ideas that board servicewould help advance the executives’ careers. We found that serving on a board increases an executive’s likelihood ofbeing promoted as a first-time CEO to an S&P 1500 firm by 44 per cent and boosted an executive’s subsequentannual pay by 13 per cent even if they weren’t promoted. Our findings provide direct evidence that boardappointments increase an executive’s visibility and equip him/her with access to unique contacts and learningopportunities. Further, we show that these opportunities translate into tangible benefits, specifically promotions andraises.Given the fact that managing CEO succession is likely the board’s most important responsibility, what do ourfindings mean for today’s boards of directors and aspiring CEOs? Our findings suggest that if firms are looking forexternal talent, looking at which executives have received board appointments is a strong signal that theseexecutives have potential. This finding is important as hiring an external CEO candidate is becoming much morecommon, as CEO turnover is on the rise, and the majority of newly appointed CEOs have not previously served asCEOs.Ultimately, board service is a key professional development tool in grooming potential CEOs that executives andboards are beginning to recognize and value. These sentiments have been echoed recently in the popular press asa recent Wall Street Journal article suggests that firms actively use external board appointments as a way to groomand develop executives and that executives also recognize the benefits of board service as Debra L. Reed, SempraCEO, claims that sitting on the board of another company “is better than an M.B.A.” These benefits help make itmuch easier to understand why a busy executive would choose to sit on a board.Finally, our findings have implications for firms seeking new board members. While current CEOs of other for-profitfirms are seen as highly valued outside board members, the number of current CEOs willing to serve on otheroutside boards has dwindled following Sarbanes-Oxley. To fill this void, firms should look to the executive ranksbelow the CEO level. Our research suggests that these individuals may be motivated to join outside boards in orderto enjoy improved career outcomes.♣♣♣Notes:This article is based on the authors’ paper Come Aboard! Exploring the Effects of Directorships in theExecutive Labor Market, in Academy of Management Journal, October 1, 2016 vol. 59 no. 5 1681-1706.The post gives the views of its author, not the position of LSE Business Review or the London School ofEconomics.Before commenting, please read our Comment Policy.2/3Steven Boivie is an associate professor in the Mays Business School at Texas A&M University.He received his Ph.D. in strategic management from the University of Texas at Austin. He isprimarily interested in how behavioral and social forces affect human actors at the top of theorganization and he conducts research in the areas of corporate governance, top executives anddirectors, and technology and new industry formation. His research has been published in theAcademy of Management Journal, Strategic Management Journal, Organization Science,Academy of Management Annals, and Journal of Management. Steve’s research has also beenmentioned in The Economist.Scott D. Graffin is an associate professor at the University of Georgia’s Terry College of Businessand also an International Research Fellow at Oxford University’s Centre for Corporate Reputation.He earned his Ph.D. at the University of Wisconsin, Madison. His research interests includecorporate governance, as well as the influence of reputation and status on organization outcomes.His research has been published numerous journals, including the Academy of ManagementJournal, Administrative Science Quarterly, the Strategic Management Journal, and OrganizationScience.Abbie G. Oliver is a doctoral candidate in strategic management at the University of Georgia’sTerry College of Business. Her research interests include stakeholder management, socialevaluations of firms, diversity in the upper echelons, and corporate governance. She expects tocomplete her Ph.D. in 2018. She has been published in the Academy of Management Journal. Michael C. Withers is an assistant professor of management in the Mays Business School atTexas A&M University. He received his Ph.D. in strategic management from the W. P. CareySchool of Business at Arizona State University. His research interests include corporategovernance, director selection and mobility, and the management of resource dependenciesthrough the board of directors. His research has been published in several journals, including theAcademy of Management Journal, Strategic Management Journal, Organization Science, Journalof Management, and Academy of Management Perspectives. Copyright © 2015 London School of Economics3/3

Serving on corporate boards plays a vital role in the career success of executives

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