Should a firm bring a supplier into the boardroom?

Abstract

Endowed with significant firm‐specific knowledge, inside directors can contribute to the decision‐making processes of the boardroom. However, regulatory changes, focusing primarily on the monitoring function of the boards, have driven inside directors out of the boardroom. This article argues that suppliers with firm‐ and industry‐specific knowledge are uniquely positioned to fill a critical void in boardrooms. It also suggests that the value of having a supplier on the board (SOTB) is influenced by environmental contingencies faced by a firm: operational efficiency, diversification, and demand uncertainty. Using an objective measure of supplier presence in the boardroom, the authors find that a supplier's presence enhances firm performance. They also find that the value of an SOTB in enhancing performance is greater in firms with lower operational efficiency and higher demand uncertainty and, is lower in firms with higher diversification. These results are robust to potential endogeneity issues, alternative estimation methods, and measures of moderator and outcome variables.

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