You’ll notice, when you look at a number of Chinese companies in depth, it seems they have a lot of academics on their boards; and they do. In fact, around 70% of all Chinese companies have at least one academic on the board (in the U.S. it’s around 40%).
Jiaren Pang, Xinyi Zhang and Xi Zhou from the Tsinghua and Peking universities respectively wondered, not unreasonably, do these folk add value?
To address the question it’d be helpful if there was a mass hiring or firing of board-member academics and handily such and event occurred in 2013. Back then the government issued a directive that henceforth no officials could hold positions in commercial enterprises. Although academics would technically fall outside the definition of government-official a large number felt, to be on the safe side, they should give up company directorships at that time; and?
Stock prices of companies where academics resigned went down. Not by much, but the effect was widespread and quantifiable. Moreover, the effect was in proportion to the profile of the academic. Where they held positions on sub-committees, were from top tier universities, had been installed before the current CEO had come on board or had foreign academic experience the effect was more pronounced.
As an interesting aside the researchers followed up to see if the companies subsequently did worse without the benefit of their scholarly grey-beards’ counsel? They didn’t. The benefit of board members from academia then appears to be cosmetic (but material and important to shareholders nonetheless).
You can access the paper in full via the following link The Value of Academic Independent Directors.
Happy Sunday.