Leaders today hear a lot about the importance of having good networks. For example, firms with better-connected CEOs can obtain cheaper financing, and firms with well-connected board directors see better performance. We wanted to explore whether the diversity of CEOs’ networks might affect their firms.
Research: CEOs with Diverse Networks Create Higher Firm Value
Research has shown that firms benefit when their CEOs have strong networks. A new study explored that idea by looking at whether the diversity of a CEO’s network affects their firm. Researchers used BoardEx data to examined a sample of 1,212 CEOs who led S&P 1500 firms between 2000 and 2010. They analyzed each CEO’s social networks by documenting their school ties, work ties, and leisure social ties (for example, clubs and charities) in the past. They found that CEOs with strong connections to people of different demographic backgrounds and skill sets created higher firm value. They also found that this greater firm value came from better corporate innovations and successful diversified M&As. Their results suggest that the diversity of leaders’ social networks is a key ingredient in how they grow their companies.