Playing the Board Game

8/8/2019 Playing the Board Game

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BRIAN PUSSER, SHEILA SLAUGHTER

and SCOTT L. THOMAS

Playing the Board Game: An Empirical Analysis of University Trustee and Corpo-rate Board Interlocks

This study empirically examines the changing nature of linkages between 20 of theUnited Statess most productive research universities and the corporate world by com-paring the number and nature of simultaneous memberships on the boards of trustees ofthese institutions and the boards of directors of some of the nations largest corporate en-tities in 2000.

The Journal of Higher EducationDiversity-Related Course Content


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Brian PusserSheila SlaughterScott L. Thomas

Brian Pusser is an Assistant Professor in the Center for the Study of Higher Educa-tion of the Curry School of Education at the University of Virginia. Sheila Slaughter is

Louise McBee Professor of Higher Education at the Institute of Higher Education at theUniversity of Georgia. Scott L. Thomas is Associate Professor of Higher Education at

the Institute of Higher Education and Adjunct Associate Professor of Sociology at theUniversity of Georgia.

The Journal of Higher Education, Vol. xx, No. x (xxx/xxx 2006)Copyright 2006 by The Ohio State University

The past decade has been marked by an increas-ingly entrepreneurial and commercial approach to the management andfinance of postsecondary institutions (Kirp, 2003; Marginson, 1997;Pusser & Doane, 2002; Slaughter & Leslie, 1997; Slaughter & Rhoades,2004). The widely noted pressure for universities to rely on emergingcorporate models of organization and to raise substantial amounts of in-come from private sources highlights a number of concerns relating to

the missions and social responsibilities of these institutions (Bok, 2003;Ehrenberg, 2000; Press & Washburn, 2000; Pusser, 2002). The retreat ofcollective support and state block funding for public higher educationhas been well documented (Breneman, 2003; Callan, 2001). As unre-stricted monies for higher education constrict, institutions have alteredtheir resource-seeking patterns to compete for new, more competitivelybased funds. To respond to new opportunities, research universities inthe United States have also shifted away from basic research towardmore applied science and technologyefforts that are considerablymore competitive and that can yield more immediate financial returns to

the institution (Geiger, 2004; Kirp, 2003; Slaughter & Leslie, 1997).Combined with intense internal pressure to shift to new funding sources,universities in the United Stateslarge and smallare increasingly

Playing the Board Game: An Empirical

Analysis of University Trustee and

Corporate Board Interlocks


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being viewedand promotedas engines of state and regional eco-

nomic development (Geiger, 2004; Kirp, 2003; Pusser & Doane, 2002).Eager to gain comparative advantage, college administrators and statepolitical leaders increasingly tout linkages between private sector enti-ties and postsecondary institutions within their regions. Such alliancesmore often than not involve varying degrees of corporate access to fac-ulties, students, laboratories, and the intellectual capital of the univer-sityresources substantially underwritten by the public at-large (Bok,2003).

While the political-economic contexts shaping universities revenue-seeking behaviors are well known, the process by which environmentaldemands are translated into institutional policies is much less well under-stood. The role of university trusteesthe stewards of these institu-tionsin the negotiation of these new demands and opportunities hasbeen little examined (Nicholson-Crotty & Meier, 2003; Pusser, 2003). Asa key site for deliberation and the enactment of a wide range of institu-tional policies, governing boards provide a key source of data on the waysin which broader market forces may influence institutional behavior.

This study focuses on trustee interlocks, the pattern of multiple boardmemberships held by individual trustees at the nations top public and

private research universities. We argue that in keeping with a number ofcontemporary theories of organization, the trustees of university govern-ing boards are significant sources of information and legitimacy for in-stitutional policymaking. Consequently, the number and types of boardswith which university trustees are affiliated provides a key window intothe sources of information, networks of legitimacy and authority, andnormative understandings of effective institutional organization and be-havior. The data collected here represent the linkages between trusteesof 20 of the United Statess most productive research universities and

the broader corporate universe. We detail these linkages by empiricallyexamining the number and nature of simultaneous memberships on theboards of trustees of these institutions and the boards of directors of thesome of the nations largest corporations as well as the nations mostpowerful research corporations.

Research on Corporate Boards

There is not a great deal of theoretical literature on postsecondaryboards of trustees. Generally, scholars assume that university presidentsare the key decision makers and institutional leaders. University presi-dents receive much more scholarly attention than do boards of trustees.The bulk of the literature on boards of trustees is descriptive, surveys of

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trustee characteristics, or prescriptive, aimed at educating trustees so

they understand and better perform their duties (Chait, Holland, & Tay-lor, 1991; Hill, Green, & Eckel, 2001; Ingram, 1995; Jones & Skolnik,1997; Kerr & Gade, 1989). In a case study of university decision-mak-ing, Pusser (2003) argues that trustees serve as links to powerful politi-cal and economic interest groups beyond the institution. Networks oftrustees have neither been extensively studied nor theorized.

The lack of research on governance networks in higher educationturned our attention to research on other forms of organizational net-works that offer insight into similar governance structures. That researchfollows in a long tradition of work in economics (Alchian & Demsetz,1972; Fama, 1980; Ghoshal & Norhria, 1993), sociology (Selznick,1957; Zajac, 1988), and organization studies (DiMaggio & Powell,1983; Granovetter, 1973; Haunschild & Beckman, 1998; Mizruchi,1996) that models interlocks, the networks of corporate boards of di-rectors. Generally, scholars that model interlocks argue that corporateboards of trustees exercise leadership and influence the shape of organi-zational structure and behavior.

One of the most frequently studied factors shaping corporate gover-nance behavior is the director interlock, the case where individuals serve

simultaneously as directors on more than one governing board. Studiesof interlocks are often based in resource dependence models (Pfeffer &Salancik, 1978) that suggest governing boards are a significant mecha-nism for pursuing and stabilizing key resources and sources of legiti-macy for the organization, and that board interlocks are essential to theboards performance in those roles.

Director interlocks have been found to generate substantial effects, in-cluding increased organizational control over resources and greater in-terfirm cooperation (Burt, 1983); isomorphic adoption of strategic tac-

tics across firms (Useem, 1984); greater access to information and areduction of information and monitoring costs ; enhanced organizationallearning (Mizruchi, 1996); greater access to capital (Stearns &Mizruchi, 1993); and the maintenance of relationships with key resourceproviders.

A variation on interlocks, indirect interlocks, occurs when directorsof competing organizations serve together on a third board, as would bethe case, for example, if a director of Oracle and a director of Intelserved concurrently on the board of General Motors. These indirect in-terlocks are of particular interest where through fiduciary obligation (asis the case with for-profit corporate boards) or custom (as in higher ed-ucation) directors do not hold directorships on the boards of competingorganizations or firms. These indirect interlocks have been found to be

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useful sources of information and strategy in times of considerable

environmental turbulence (Burt, 1983).

Interlocks as Information Portals

One of the most widely invoked new paradigms for corporate perfor-mance relies upon the juxtaposition of strategic competition, intellectualcapital, and knowledge management (Choo & Bontis, 2002). Given theincreasingly high cost of obtaining information and the comparative ad-vantages that accrue to those organizations that capitalize on knowledge,the ability to use networks to trade information, best practices, and inno-vative strategies is increasingly instrumental to organizational success.Building on earlier work in the sociology of organizations on the struc-tural embeddedness of social capital (Granovetter, 1973), Davis (1991)argues that interlock ties constitute a form of organizational social capi-tal that provides access to essential information, innovation, and strat-egy, while serving as a key component in the creation of intellectual cap-ital within organizations. Nahapiet and Ghoshal (1998) argue that thestructural dimension of social capital refers to the overall pattern ofconnections among actorsthat is, who you reach and how you reach

them. Among the most important facets of this dimension are the pres-ence or absence of network ties among actors (p. 244)

Other research suggests another powerful outcome of board inter-locks: an increase of trust between board members and across boards.Huizing and Bouman argue that trust positively affects the allocativeand adaptive efficiency of knowledge markets, which should thereforebe cultivated (2001, p. 201). Consequently, trustees familiarity and ex-perience with one another in multiple settings increases trust and theflow of information.

Interlocks and Postsecondary Governance

The analysis here of board interlocks offers some of the first empiricaldata on the exogenous relationships shaping the flow of information onstrategy and decision-making practices for governing board members ofpostsecondary institutions. Based on the empirical and theoretical litera-ture on corporate networks, board interlocks in colleges and universitiescan be conceptualized as networks of authority and legitimacy that pro-vide a guide to understanding the role of governing boards in establish-ing and maintaining particular strategies, policies, forms of authority,and legitimate behavior. Although there are numerous studies of boardsof trustees (Ingram, 1995; Kerr & Gade, 1989; Pusser, 2004) and some



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studies of postsecondary boards connections to corporations, there are

to date no studies of interlocking directorates or networks of members ofboards of trustees of colleges and universities. To address this gap in theexisting research base in higher education, this article presents empiricaldocumentation of the nature of board interlocks at 20 prominent re-search universities in 2000 and explores some of the implications ofthese university-business relationships.

Sample, Methods, and Findings

While the literature on trustees and governing boards touches on manydifferent types of institutions, the data collection here is confined to thegoverning boards of the nations leading research institutions. A reviewof the literature focusing on the entrepreneurial tendencies of the modernresearch university suggests that these institutions are most likely to bedependent on networks of information and authority by virtue of thetypes and volume of research conducted under their organizational um-brella (Slaughter & Leslie, 1997; Slaughter & Rhoades, 2004).

The sample was defined by the membership of the governing boardsof 20 of the nations leading research universities in academic year 2000.

Using the National Science Foundations report of total institutional ex-penditure on federally financed research and development in fiscal year2000, we chose 10 of the leading institutions in the public sector and 10of the leading institutions in the private sector on this measure. Table 1lists the institutions included in the sample along with the total amountof federal funding for research and development (R&D), including di-rect and reimbursed indirect costs, by all agencies of the federal govern-ment. In the private sector, these institutions represent the top 10 interms of federally financed R&D expenditures that year. While the pub-

lic sector institutions are also confined to the top 10, we were forced tocombine many campuses that fall under the jurisdiction of a single pub-lic board of trustees or regents. The University of Californias nine cam-puses are one such example. While many of the individual UC campusesfall within the public top 10 list, all nine campuses are governed by asingle board of regents. Our interest in this article is the identification ofthe structural relationships of university boards overseeing the nationsleading research universities. Combining institutions in this fashionposes no significant risk to that goal. If this aggregation were to presenta bias, the University of California would prove an extreme case for ad-ditional corporate ties (note that none of the other combined systems hasmultiple institutions of the stature of those within the UC system). Aswill be seen, the results of our analysis do not suggest such a bias exists.



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Of central interest in this study is the number of university governing

board members having concurrent membership on publicly traded cor-porate boards. Thus, a first step in the data collection effort was to iden-tify all members of the governing boards of the 20 research universitiesin the sample. We used institutional records to identify active membersof these boards in academic year 2000.1 A total of 662 active boardmembers were identified across the 20 institutions in the sample. The662 individuals represent current membership of these 20 governingboards, both voting and ex officio.

Here a corporate board membership is defined as a current (2000)appointment to a publicly held corporations board of directors. To de-termine the memberships on publicly traded corporations held by uni-versity board members, we relied on corporate proxy statements filedwith the United States Security and Exchange Commission. These


TABLE 1

Federally Financed R&D Expenditures, Fiscal Years 1999 2001*

Federally Financed R&D Expenditures

FY 2000 NSF Rank Academic Institution 1999 2000 2001

PrivateInstitutions

9 Columbia University in the City of NY 240,158 283,163 317,928

17 Cornell University, All Campuses 234,792 229,872 240,466

22 Duke University 186,757 204,180 218,109

10 Harvard University 266,019 281,699 300,414

1 Johns Hopkins University 770,580 793,266 879,741

7 Massachusetts Institute of Technology 308,921 306,668 304,319

3 Stanford University 353,947 367,083 384,468

6 University of Pennsylvania 279,013 312,434 351,996

13 Washington University 218,598 254,148 284,928

15 Yale University 213,404 232,019 250,702

PublicInstitutions

19 Pennsylvania State U, All Campuses 199,105 226,074 245,951

1 University of California, All Campuses** 1,287,284 1,415,227 1,530,117

8 University of Colorado, All Campuses 244,686 300,667 308,643

25 University of Illinois at Urbana-Champaign 185,767 193,490 195,316

4 University of Michigan, All Campuses 334,226 364,033 396,117

16 University of Minnesota, All Campuses 207,761 229,958 264,289

22 University of North Carolina at Chapel Hill 182,935 194,794 221,615

18 University of Pittsburgh, All Campuses 194,618 228,155 268,571

2 University of Washington - Seattle 368,112 389,622 435,103

11 University of Wisconsin-Madison 249,212 278,629 304,009

*SOURCE: http://caspar.nsf.gov/cgi-bin/WebIC.exe?template=nsf/srs/webcasp/start.wi**All 9 University of California campuses are combined under a single board


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records were accessed using a commercial database maintained by

EDGAR Online, Inc. By searching the EDGAR Online database foreach university board member in our sample, we were able to identifywhich of these individuals had memberships on the boards of publiclyheld corporations during the 2000 calendar yearthe same year inwhich they were identified as a member of one of the university govern-ing boards in our sample. Using the names of the 662 members of uni-versity governing boards of the 20 institutions in our sample, we identi-fied 413 memberships on the boards of 338 publicly held corporations,for an average of .62 corporate board memberships per universitytrustee/regent.

These data were arrayed in a 662 X 338 affiliation matrix (universityboard members X publicly held corporations) capturing the number of

jointly held board memberships by university governing board membersin our sample. The matrix took the general form shown in Figure 1, withuniversity governing board members listed down the rows of the matrixand publicly held corporations listed across the columns. If a universitygoverning board member also holds a membership on one or more cor-porate boards, this relationship is designated by a 1 in the appropriatecell in this matrix. The absence of such joint membership is designated

by a 0 in this matrix.Affiliation matrices such as that shown in Figure 1 provide a great

deal of useful information. For example, by summing across the rows ofthis matrix, one can determine the number of corporate board member-ships held by any university board member. Trustee 1, at University A,sits on one (1+0+0) corporate board. In Figure 1, Trustee 2, at UniversityB, sits on two (1+0+1) of these boards. Similarly, it is also relativelysimple to determine how many university board members sit on theboards of particular corporations by summing down the columns of this


FIGURE 1

First-stage affiliation matrix for joint university-corporate governing board membership.

Event (N = 338)Actor (N = 662) Corporation 1 Corporation 2 Corporation 3

University A-Trustee 1 1 0 0

University A-Trustee 2 1 1 0

University A-Trustee 3 0 1 0University B-Trustee 1 1 0 0

University B-Trustee 2 1 0 1

University C-Trustee 3 0 0 0


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matrix. For example, Corporation 1 has four members on its board of di-

rectors who are also members of university governing boards in oursample (1+1+0+1+1+0).

As our ultimate interest is in the overlapping memberships betweenuniversity and corporate governing boards, we simplified the original662 X 338 affiliation matrix by aggregating the total linkages observedfor each university. This allowed us to develop a new 20 X 338 matrixcapturing the number of ties between each university and each corpora-tion in the sample. Figure 2 shows the general form of this new matrix.

For example, if University X trustee Jane Smith was a director atXerox and at IBM, and University X trustee John Stevens was also a di-rector of Xerox, University X would have a total of two ties to Xeroxand one to IBM.2 A total of 413 ties between university board membersand publicly traded corporations were identified. Table 2 summarizes in-formation contained in this aggregated matrix for the 20 universities inour sample.

The information contained in Table 2 is separated into (a) public andprivate sector institutions and (b) all publicly held corporate board mem-berships and those limited to the Fortune 1000 (in the year 2000) or firmsappearing on the National Science Foundations top 500 R&D ranking

(1998).3 This table immediately reveals two realities. First, governingboards at the private institutions in our sample are considerably larger thanthose at the public institutions analyzed in this study. The active member-ship on boards at private institutions ranges from 19 at Yale to 72 at MIT,with an average of 62.5 active members.4 Active membership on theboards of the public institutions in our sample ranges from 9 at Michiganto 51 at Pittsburgh, with average active board membership at 19.2.

A second reality highlighted by this table is related to the size of theuniversity governing boards at each institution. The probability of find-

ing interlocking university-corporate boards increases with the size ofthe university governing board. We would therefore expect private insti-tutions to have a greater number of overlaps with corporate governingboards. Indeed, this is the case, with overlapping corporate board


FIGURE 2

Second-stage affiliation matrix for joint university-corporate governing board membership.

Event (N = 338)

Actor (N = 662) Corporation 1 Corporation 2 Corporation 3

University A 2 2 0

University B 2 0 1


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TABLE2

UniversityandCorporateBoardMembershipSu

mmary

PrivateResearchUniversities

AllPublicCorpo

rations

Fortune500&NSF500

Trustees

CorporateBo

ard

Memberships/

CorporateBoard

Membersh

ips/

Analyzed

Memberships

Trustees

Memberships

Trustees

ColumbiaU

niversityintheCityofNY

22

19

0.86

8

0.36

CornellUniversity

67

27

0.40

7

0.10

DukeUniversity

37

22

0.59

12

0.32

HarvardUn

iversity

37

26

0.70

14

0.38

JohnsHopk

insUniversity

67

45

0.67

18

0.27

MassachusettsInstituteofTechnology

72

42

0.58

24

0.33

StanfordUniversity

30

24

0.80

9

0.30

UniversityofPennsylvania

59

39

0.66

12

0.20

Washington

University

55

75

1.36

26

0.47

YaleUniversity

19

6

0.32

5

0.26

PrivateTotals

465

325

0.70

135

0.29

PublicResea

rchUniversities

AllPublicCorpo

rations

Fortune500&NSF500

Trustees

CorporateBo

ard

CorporateBoard

Membersh

ips/

Analyzed

Memberships

Ties/Trustees

Memberships

Trustees

Pennsylvan

iaStateU,AllCampuses

32

11

0.34

7

0.22

UniversityofCalifornia,AllCampuses**

26

17

0.65

3

0.12

UniversityofColorado,AllCampuses

10

1

0.10

0

0.00

UniversityofIllinoisatUrbana-Champaign

15

1

0.07

0

0.00

UniversityofMichigan,AllCampuses

9

1

0.11

0

0.00

UniversityofMinnesota,AllCampuses

12

0

0.00

0

0.00

UniversityofNorthCarolinaatChapelHill

14

7

0.50

1

0.07

UniversityofPittsburgh,AllCampuses

51

35

0.69

15

0.29

UniversityofWashington-Seattle

11

13

1.18

4

0.36

UniversityofWisconsin-Madison

17

2

0.12

0

0.00

PublicTotals

197

88

0.45

30

0.15

GrandTotals

662

413

0.62

165

0.25


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memberships on any publicly held corporation ranging from a low of 6

at Yale to 75 at Washington University in the private sector, and 0 atMinnesota to 35 at Pittsburgh in the public sector.

Also important in this table is the average number of overlaps per ac-tive university board member. Not only are the governing boards largerat private universities in our sample, but they also are considerably moreinterconnected to the corporate world through overlapping directorshipsidentified here. Yale has an average .36 corporate board directors per ac-tive member of its university governing board. Washington University isat 1.36 on this measure. Values for our public sector institutions rangefrom 0 at Minnesota to 1.18 at the University of Washington.

These differences become considerably more pronounced when onelimits the analysis to membership in the corporate elitemembershipon the boards of directors of Fortune 1000 or NSF R&D 500 firms (only126 out of the 338 publicly held corporations identified above). One halfof public institutions in our sample have no connection through theirgoverning boards to the nations most powerful firms. In contrast, over-laps in the private university sector are relatively many and, as we willshow, widespread across business sectors.

The patterns in Table 2 are largely a direct function of how these uni-

versity governing boards are populated. While considerable variance ex-ists between institutions in how governing board members are appointed,perhaps the single largest factor defining these differences is that boardsat public institutions usually rely on gubernatorial appointments to fillmost or all of the seats on the board. These appointments are often polit-ically driven, resulting in public governing boards being populated bypeople from within the state and from business sectors that are state orregionally based (Pusser, 2004). Board membership at private institu-tions, on the other hand, has fewer geographical restrictions, and it is dri-

ven by a different set of motivations and institutional interests.While the structure of governing boards at public institutions limits op-

portunities for extensive linkages to the corporate elite as we have definedit here, the business sectors represented on these public boards are re-markably similar to those sectors represented on the boards of private re-search universities. Tables 3A and 3B provide a ranking of the top 25 busi-ness sectors represented on the university governing boards in our sample.Corporations are classified into industry sectors using the Standard Indus-trial Classification System (SIC) (US Census Bureau, 2000). The SICcoding scheme allows firms to be represented in multiple industrial sec-tors. Consider Northwest Airlines as an example. Northwest participatesin four distinct sectors: (a) scheduled air transportation, (b) data process-ing services, (c) vocational schools, and (d) general holding companies.



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The profiles of dominant industry representation on university boards of

trustees differ notably between public and private universities. First, pri-vate universities in our sample are considerably more likely to be con-nected to firms that operate as holding companies for a variety of sub-sidiary firms (no doubt offering more opportunities for board-levelconnections that are not captured by our analysis). Trustees at public insti-tutions tend not to enjoy such connections as frequently. A second distin-guishing feature is the connection of public institutions to the banking in-dustry. A disproportionate share of ties in the public sector went to firmswith banking interests. Private sector institutions, by contrast, are con-nected to a wide range of what might be considered new-economy firms:computer software and hardware, electronics, pharmaceuticals, etc.5

A more detailed consideration of business sector representation is of-fered in Table 4. When the top six business sectors are sorted by univer-sity, the patterns more clearly reveal the saturation of these connections


TABLE 3A

Corporate Sector Summary (top 25)Private Institutions

Sector Private Universities

Holding Companies, Not Elsewhere Classified 37

Prepackaged Software 14

Electronic Computers 13

Computer Peripheral Equipment, Not Elsewhere Classified 12

Pharmaceutical Preparations 11

Surgical And Medical Instruments 9

Semiconductors And Related Devices 8

Dog And Cat Food 7

Petroleum Refining 7

Security Brokers And Dealers 7

Computer Integrated Systems Design 6

Crude Petroleum And Natural Gas 6

Data Processing Services 6

Electric Services 6

Electromedical Apparatus 6

Aircraft 5

Aircraft Equipment, Not Elsewhere Classified 5

Guided Missiles And Space Vehicles 5

Investment Advice 5

Misc Business Credit Institutions 5

National Commercial Banks 5

Perfumes Cosmetics 5

State Commercial Banks 5

Surgical Appliances And Supplies 5Telephone And Telegraph Apparatus 5

Totals 205


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at private universities and the clustering of connections at particularpublic universities. Consider, for example, the distribution of connec-

tions to firms with general holding companies that are found among theprivate institutions in our sample. Eight of the 10 private universitieshave such connections, with five institutions having five or more over-lapping board members with such firms. In contrast, only three of thepublic institutions in our sample have overlapping ties with such firms,with only a single institution, Pennsylvania State University, havingmore than a single connection to firms represented in this sector.

In Figure 3, we summarize the overlapping board membershipsamong private institutions in our sample. Figure 4 provides a summaryof these relationships for the public institutions in our sample.

We felt justified in partitioning the overall network into the public andprivate sector relationships due to the relative disconnect between theseuniversity sectors. As shown in Figures 3 and 4, and in several of the


TABLE 3B

Corporate Sector Summary (top 25)Public Institutions

Sector Public Universities

Bank Holding Companies 7

National Commercial Banks 7

State Commercial Banks 5

Holding Companies, Not Elsewhere Classified 4

Nondeposit Trust Facilities 4

Pharmaceutical Preparations 4

Aircraft Engines And Engine Parts 2

Business Services, Not Elsewhere Classified 2

Canned And Cured Fish & Seafoods 2Canned Fruits Vegetables Etc 2

Commercial Physical & Bio Research 2

Dried & Dehydrated Fruits Vegetables 2

Electric Services 2

Frozen Fruits Fruit Juices Vegetables 2

Industrial Inorganic Chemicals, Not Elsewhere Classified 2

Industrial Organic Chemicals, Not Elsewhere Classified 2

Land Subdividers & Developers, Not Elsewhere Classified 2

Management Consulting Services 2

Plastics Materials Synthetic Resins 2

Semiconductors And Related Devices 2

Adhesives & Sealants 1

Advertising Agencies 1

Air And Gas Compressors 1

Air Transportation Scheduled 1

Aircraft 1

Totals 64


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TABLE4

DominantC

orporateSectorRepresentationbyU

niversity(SIC)

Computer

Surgical&

Holding

Prepackaged

E

lectronic

Peripheral

Pharm

aceutical

Medical

Institutional

PrivateResearchUniversities

Companies

Software

C

omputers

Equip

Prepa

rations

Instruments

Totals

ColumbiaU

niversityintheCityofNewYork

1

0

1

1

0

0

3

CornellUniversity

1

0

0

0

1

1

3

DukeUniversity

5

1

1

1

2

2

12

HarvardUn

iversity

8

2

1

1

0

0

12

JohnsHopk

insUniversity

7

1

2

1

2

2

15

MassachusettsInstituteofTechnology

7

4

3

3

2

0

19

StanfordUniversity

0

2

2

2

0

1

7

UniversityofPennsylvania

3

2

2

2

2

0

11

Washington

University

5

2

1

0

2

1

11

YaleUniversity

0

0

0

1

0

2

3

PrivateTotals

37

14

13

12

1

1

9

96

Bank

National

S

tate

Holding

Commercial

C

ommercial

Holding

Nondeposit

Pharmaceutical

Institutional

PublicResea

rchUniversities

Companies

Banks

B

anks

Companies

Trust

Facilities

Preparations

Totals

Pennsylvan

iaStateU,AllCampuses

1

1

1

2

0

0

5

UniversityofCalifornia,AllCampuses**

0

0

0

0

0

0

0

UniversityofColorado,AllCampuses

0

0

0

0

0

0

0

UniversityofIllinoisatUrbana-Champaign

0

0

0

0

0

0

0

UniversityofMichigan,AllCampuses

0

0

0

0

0

0

0

UniversityofMinnesota,AllCampuses

0

0

0

0

0

0

0

UniversityofNorthCarolinaatChapelHill

1

1

0

0

0

0

2

UniversityofPittsburgh,AllCampuses

5

5

4

1

4

3

22

UniversityofWashingtonSeattle

0

0

0

1

0

1

2

UniversityofWisconsin-Madison

0

0

0

0

0

0

0

PublicTotals

7

7

5

4

4

4

31


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tables preceding these figures, the nature of the overlapping board mem-

berships is very different across the public and private institutions in oursample. Table 5 elaborates this difference by displaying the number ofactual overlaps on corporate boards that we found among our sample of20 universities. An overlap in this sense is defined by instances in whicha trustee/regent from one or more universities serves as a director on thesame publicly held corporate board. Figure 3 shows these overlaps. Inthis figure, one can see that Harvard, Pennsylvania, and Cornell eachhad at least one board member serving on a common corporate board ofdirectors: JP Morgan Chase. Overlaps such as this provide unique op-portunities for members from separate, often competing university gov-erning boards to come into contact.

The frequency of overlap among board members from private univer-sities is significantly greater than that observed among public universityboard members. This can be seen most dramatically in the numbers re-ported in the bottom panel of Table 5. Only three of the 10 public uni-versities exhibit any overlap at all (Penn State, North Carolina, and Pitts-burgh). Moreover, while the overlaps linking private sector universitiesare many, there are no overlapping events among public sector universi-ties that serve to link public institutions to other public institutions. Of

these three public institutions with overlapping memberships, all over-lap with trustees/regents from private sector institutions. Given that thesize of the board is generally larger for private universities, the probabil-ity of overlaps in that sector is increased. However, the prominence ofthe individual board members in the wider political economy is a factorshaping the number of overlaps for both public and private institutions.

Considering the degree to which advantages are accrued throughoverlaps that provide opportunities for trustees/regents from competinginstitutions to come into contact with one another, most public institu-

tions are at a decided disadvantage. Seven public institutions in our sam-ple are completely disconnected through this network of the most eliteuniversitiesthat is, there is no path that exists through the overall net-work that would link these institutions to others in the sample.

In contrast to the disconnected nature of public universities in oursample, all private institutions in our sample have at least two connec-tions to other private institutions in the sample. Six private institutionshave trustees that serve on at least five corporate boards on whichtrustees from competing universities also serve.

Such indirect connections are a matter of degree. While our analysisshows that trustees from competing universities often have opportunitiesto sit together on an outside corporate boardthus connecting the com-peting institutions through two stepsthese linkages can also be made



16/30

FIG. 3. Private University Networks


17/30

FIG. 4. Public University Networks


18/30

through connections to board members of competing institutions who inturn share membership on a second, third, or fourth corporate board.This is the degree of separation idea that has inspired innumerable

books and movies of late. Table 6 shows the degree of separation result-ing from the consideration of corporate board memberships observed inour sample of trustees/regents from these elite research universities.

In this table one can see, for example, that MIT and Johns Hopkinseach have at least one trustee sitting on a common corporate board (thereare in fact at least five such overlaps; see Figure 3), thus creating a dis-tance of two between these universities. But Johns Hopkins must oper-ate through board memberships on two intermediate corporations toreach a Harvard trustee. One such path would be through Medtronic toStanford to Hewlett Packard to Harvard (distance = 4; see Figure 3). Asa whole, this table again shows the relatively close proximity of privateinstitutions and the virtual disconnect between the governing boards ofpublic institutions in our sample.


TABLE 5

Summary of Corporate Board Interlocks Shared by Universities

With Private With PublicNumber of Corporate Board Overlaps All Universities Universities

Johns Hopkins University 6 4 2

University of Pennsylvania 5 5 0

Stanford University 4 4 0

Harvard University 6 6 0

Columbia University in the City of New York 5 5 0

Massachusetts Institute of Technology 8 7 1

Washington University 3 2 1

Yale University 2 2 0

Cornell University 5 4 1

Duke University 5 5 0

Private Average 4.9 4.4 0.5

University of WashingtonSeattle 0 0 0

University of Michigan, All Campuses 0 0 0

University of California, All Campuses** 0 0 0

University of Colorado, All Campuses 0 0 0

University of Wisconsin-Madison 0 0 0

University of Minnesota, All Campuses 0 0 0

University of Pittsburgh, All Campuses 1 1 0

Pennsylvania State U, All Campuses 3 3 0University of North Carolina at Chapel Hill 1 1 0

University of Illinois at Urbana-Champaign 0 0 0

Public Average 0.5 0.5 0

Overall Average 2.7 2.45 0.25


19/30

TABLE6

CorporateB

oardOverlaps:ShortestDistancesB

etweenEliteResearchUniversities

JHU

Penn

Stanford

Harvard

Columbia

MIT

Wash-U

Yale

Cornell

Duke

UWA

UMI

UCA

UCO

UWI

UMN

Pitt

PAST

UNC

UIL

JHU

-

4

2

4

4

2

4

2

4

2

0

0

0

0

0

0

2

2

6

0

Penn

4

-

2

2

2

2

4

6

2

4

0

0

0

0

0

0

6

4

6

0

Stanford

2

2

-

2

2

4

6

4

4

4

0

0

0

0

0

0

4

4

8

0

Harvard

4

2

2

-

2

2

4

4

2

2

0

0

0

0

0

0

6

4

6

0

Columbia

4

2

2

2

-

2

4

6

2

4

0

0

0

0

0

0

6

4

6

0

MIT

2

2

4

2

2

-

2

4

2

2

0

0

0

0

0

0

4

2

4

0

Wash-U

4

4

6

4

4

2

-

4

4

2

0

0

0

0

0

0

6

4

2

0

Yale

2

6

4

4

6

4

4

-

6

2

0

0

0

0

0

0

4

4

6

0

Cornell

4

2

4

2

2

2

4

6

-

4

0

0

0

0

0

0

6

2

6

0

Duke

2

4

4

2

4

2

2

2

4

-

0

0

0

0

0

0

4

4

4

0

UWA

0

0

0

0

0

0

0

0

0

0

-

0

0

0

0

0

0

0

0

0

UMI

0

0

0

0

0

0

0

0

0

0

0

-

0

0

0

0

0

0

0

0

UCA

0

0

0

0

0

0

0

0

0

0

0

0

-

0

0

0

0

0

0

0

UCO

0

0

0

0

0

0

0

0

0

0

0

0

0

-

0

0

0

0

0

0

UWI

0

0

0

0

0

0

0

0

0

0

0

0

0

0

-

0

0

0

0

0

UMN

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

-

0

0

0

0

Pitt

2

6

4

6

6

4

6

4

6

4

0

0

0

0

0

0

-

4

8

0

PAST

2

4

4

4

4

2

4

4

2

4

0

0

0

0

0

0

4

-

6

0

UNC

6

6

8

6

6

4

2

6

6

4

0

0

0

0

0

0

8

6

-

0

UIL

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

-


20/30

In summary, relative to the public institution governing boards in our

sample, those at private institutions are much more connected to theboards of directors at some of the nations most powerful publicly heldcorporations. In addition to being more connected, governing boards atprivate universities in our sample also incorporated interests from a widervariety of business sectors. Finally, the overlaps of private universityboard members serving on common corporate boards provide these boardmembers from competing universities unique forums in which to comeinto direct contactopportunities not afforded to the governing boardmembers at the majority of public sector universities in our sample.

Discussion

Interlocks: To What Purpose?

Although scholars studying corporate boards of directors and corpo-rate governance argue that board membership and governance/leadershipare closely related, the case is generally made based on comparisons ofperformance of corporations with specific configurations of corporateboards. This in turn reflects critiques of research on interlocks in thebroader organizational literature (Pettigrew, 1992; Stinchcombe, 1990).

These critiques argue that documenting the fact of interlocks is only afirst step, albeit an important one, towards understanding how interlocksshape organizational performance. Stinchcombe argues that ultimatelywe must also turn attention to what flows across the links, who decideson those flows in the light of what interests, and what collective or cor-porate action flows from the organization of links (as cited by Mizruchi,1996, p. 293). The ways in which interlocks shape institutional perfor-mance will depend on the size of the board, whether it is a single campusor multi-campus board, the culture and history of the board, and the ap-

pointment and confirmation process for trustees. Where board interlocksincrease board members access to leadership and decision-making in thebroader political economy, gubernatorial appointments take on additionalimportance, and this is particularly true for appointments to multi-cam-pus boards. It has been estimated that just under half of all trustees atpublic four-year institutions are appointed by a governor (Madsen, 1997).Many of those appointees also face legislative approval, though guberna-torial appointments are rarely publicly contested (Pusser, 2003). Whileprivate boards are self-perpetuating and use a variety of approaches to se-

lect new board members, many of the same dynamics hold true. Giventhat on private boards current board members are influential in cultivat-ing prospective board members (Gale, 1993), the presence of significantinterlocks may be more likely for private governing boards.



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While our data do not allow us to address precisely what flows

across the links and how the information flow affects colleges and uni-versities, trustee networks provide a key platform and information portalfor shaping the increasing commercialization of academe. Trustee lead-ership shapes the universities in our sample in at least two ways. First,the literature on governance notes the key role of trustees of private sec-tor universities as participants in information sharing and organizationallearning that in turn shapes institutional policy. Second, public universi-ties, which have a degree of direct access to deliberations in the board-rooms of private universities and indirect access through alternative net-works, such as the Business Higher Education Forum, may well emulatethe policies developed in the well-resourced private sector, contributingto greater commercialization.

In the discussion that follows, we develop multiple accounts of theflow of information and expertise through the interlock networks basedon historical and contemporary document analysis. We hope this discus-sion will stimulate further research on networks of boards of trustees atprivate and public sector universities.

Innovation Management in Public and Private Universities

If interlocking boards provide private research universities advantagesover public universities, then we should be able to see differences in adop-tion of strategies, practices, and behaviors between the two sets of institu-tions. Market activities should be most likely to differentiate the two. Pri-vate research universities have significant numbers of governing boardmembers who also sit on corporate boards of the Fortune 1000. These in-terlocks offer the possibility for rapid communication of information aboutbusiness practices and market activity relevant to higher education. Publicresearch universities, which are only indirectly connected to this network

of knowledge in a single instance, should have more difficulty gaining ac-cess to information about innovative business practices and market activity,or at least lag substantially behind private research universities.

Three recent practices are particularly relevant for an analysis of the im-pact of board interlocks: (a) presidential compensation practices; (b) in-creased compensation for professors; and (c) taking equity interests in com-panies, often based on faculty discoveries, in exchange for giving thecompany the right to use university intellectual property. The members of thegoverning boards of the top 10 private research universities are positioned toreceive considerable information on corporate perspectives on these prac-tices and are consequently likely to be more comfortable with their adoption.Approval from the boards of trustees at both private and public research uni-versities is necessary for adoption of any or all of the three practices.



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Presidential selection is one of a governing boards most important

functions. Often the trustees of universities are themselves CEOs. Thesalaries of CEOs have risen dramatically in the past decade. Where thenetworks of corporate directors and trustees are dense and overlapping,as CEO compensation in the corporate sector increases, a similar logicmay well be subsequently applied to CEO compensation in private uni-versities (Birnbaum, 2000).Before the mid-1990s, very few private research university presidentshad annual compensation packages that topped $500,000 per year. In1994, two made more than $500,000, but by 2003, 42 presidents did(Basinger, 2004). Pay for leaders in prestigious universities began to bereferred to as presidential compensation packages, including bonusesfor meeting performance objectives as well as various forms of deferredcompensation. By FY2003, nine of the 10 top private research universitypresidents had total compensation over $700,000, while the median payfor the president of a research university in FY2003 was $459,643(Basinger, 2004).

Presidential salaries for public research university presidents fell farbehind those of private universities in the 1990s. By 1999, the gap be-tween private and public university presidents salaries had widened to

as much as 30%. When state legislatures were unwilling to raise presi-dential salaries, private sources began to make up the difference. A 2002Chronicle of Higher Education survey found that about one third of the131 public university presidents received base-salary supplements fromprivate sources that equaled and sometimes far exceeded their statesalaries (Basinger & Perry, 2002, p. A30). Most of the presidents ledstate systems, flagship, or large land-grant institutions with large foun-dations. In some cases, new presidents have signed two contracts. Oneis with the university, and one covers compensation from its affiliated

private foundations. Increasingly, public university presidents are alsojoining what The Chronicle calls the $500,000 Club (Basinger, 2002,p. A30). For example, the Chronicle reported that John Shumaker, Pres-ident of the University of Tennessee system, had total annual compensa-tion of $733,550. The state contribution included $365,000 base salary,$20,000 expense allowance, a house and car, and $98,000 performancebonuses. His private contract has $250,000 in benefits that include exec-utive stock options purchased by the University of Tennessee Founda-tion and performance bonuses from the Foundation . President Shu-maker left the university amid some controversy in 2003, and morerecently, public presidential compensation packages have increasinglymoved away from private contributions. The new president of theUniversity of Tennessee system, John D. Petersen, received total



23/30

compensation of $450,000 in FY2004, $380,000 of that total coming

from public funds (Executives Compensation, 2004).While only 17 of the presidents of public research institutions are

members of the $500,000 Club, many may join in the near future(Basinger & Henderson, 2004). The public sector institutions lag behindthose in the private sector, but presidents use information from varioussources, including search firms and data on the private sector, to pushtheir trustees to develop similar practices. The market for presidentsspans private and public sectors and, so long as supplemental private re-sources are available, allows the public to use private sector practices toleverage their boards for similar compensation packages.

The densely interlocked boards of private research universities maynot provide them with long-term strategic advantages over elite publicuniversities, at least with regard to presidential compensation packages,even though their network seems to give private institutions a short-termedge. Although the two sets of institutions may end up with similar prac-tices and strategies, they do so through a different set of dynamics. In-formation concerning practices and strategies travels rapidly through thedense private research university network, and boards of trustees quicklyadopt new practices, such as complex, high-reward presidential pay

packages. The top public sector boards, drawing on alternate sources ofinformation, eventually implement similar packages, but to do so theyrely on non-state sources.

Faculty salaries may be an area in which private university trustee net-works play an important role. Beginning in the 1980s, salaries for pro-fessors increased much more rapidly at private sector universities than atpublic ones (Smallwood, 2001). By 2000, there was a noticeable gap be-tween private and public salaries. On average, professors at private uni-versities made $15,000 more than did professors at public universities.

University trustees at private research universities, with a greater proba-bility of access to the process of competitive bidding for professionaltalent through interlocks to for-profit boards, may have seen the compet-itive edge private universities could gain through attracting the best andthe brightest professors with higher salaries. As a result, they may bemore readily inclined to allocate institutional resources to increasingfaculty salaries.

Public sector research university trustees and presidents have also in-creased professorial salaries, but, lacking the same resources, they havedone so much more unevenly than private universities have. Efforts bypublic universities to compete with private universities with regard tosalaries increases salary differentiation within public institutions(Rhoades, 1998). Increased salary differentiation further exacerbates the



24/30

resource inequalities between various departments and colleges within

the university. The concentration of resources within a few units height-ens internal stratification within public research universities.

Another instance of the impact of board interlocks emerges from thestudy of public and private university partnerships with industry, partic-ularly the equity stakes held by universities (Slaughter & Rhoades,2004). Equity stakes were not common among research universitiesuntil the 1980s, when entrepreneurial activity on the part of universitiesbegan to increase rapidly. The number of equity stakes spread among re-search universities, slowly at first, and starting in the 1990s, quiterapidly. Scholars of such university partnerships (Feldman, Feller,Bercovitz, & Burton, 2002) have ascribed the rapid growth of universi-ties taking equity positions to organizational learning through technol-ogy transfer offices, and have generally not considered the role of net-worked boards of trustees. However, this is precisely the sort oforganizational learning that interlock researchers see as spreadingrapidly through linked boards (Slaughter & Rhoades, 2004).

Equity stakes appeared more frequently among research universitiesin the 1980s. Taking equity positions rather than licensing intellectualproperty and receiving royalties became a market strategy for research

universities. According to Feldman et al. (2002), equity provides threeadvantages over licensing. First, equity gives universities options or fi-nancial claims on companies future income; second, equity deals aligninterests of the university and the firm with regard to rapid commercial-ization of technology; third, equity signals interested investors about theworth of the technology. The second and third advantages are particu-larly relevant to corporate board members in their roles as corporateleaders and as university trustees. As university trustees and corporateboard directors, they may well have greater knowledge of how to use eq-

uity positions effectively to align the interests of start-ups and the uni-versity, the better to foster rapid and efficient development of the tech-nology. So too, trustees with interlocking board memberships may morereadily process the signals that universities send about the potential risksand benefits of taking an equity position in a faculty company.

In 2002, Feldman et al. surveyed 67 Carnegie I and II research univer-sities that had active technology transfer operations. Of these institu-tions, 76% had taken equity in a company and had participated in 679equity deals altogether. Public universities appeared to make greateruseof equity when compared to their private research university cohorts.Public universities took more equity in companies than did privateuniversities, even though 13 of the public universities (19% of thetotal sample) were prohibited by state laws from holding equity in



25/30

companies. Ten of these public universities were able to circumvent state

statutes by forming independent entities (501(c)3s)usually researchfoundations or other intermediary institutionsthat were able to take eq-uity in corporations based on faculty intellectual property. Although thestudy does not address whether public or private universities initiated thefirst equity deals, this market strategy spread rapidly through both, evenmore rapidly among the public than the private, despite the barriers topublic institutions taking equity. This suggests that public institutions un-connected to the interlocked network in which private research universi-ties participate did not suffer. Indeed, both sets of institutions adopted thesame strategies geared to increasing external revenue streams.

Ironically, public research universities adoption of practices andstrategies similar to those of privates universities may steer public insti-tutions trustees toward more aggressive market activity. Public researchuniversities do not have the same resources as private universities. Eventhe highest endowments of the top 10 public institutions do not compareto the endowment of the average top 10 private schools. To pay presi-dents, public trustees have to support other revenue-generating prac-tices, such as increasing revenue from intellectual property. As notedabove, public institutions are more likely than private ones to take equity

positions in faculty intellectual property, even if that means circumvent-ing state law or working to change state law to allow such practices.Public institutions may become more entrepreneurial than private insti-tutions are so that they can keep up. Public trustees may find it easier tobuild the foundation than to get funding from the state legislature inorder to compete with their private counterparts.

Conclusions

While this research provides important data on the number and the na-ture of trustee interlocks, as well as on some of the potential problemsgenerated by interlocks, future research should turn attention to thebroader institutional and political-economic dynamics that set the con-text in which networks of trustees shape institutional policies. The dif-ferences in density between private and public networks may have un-derlying causes that we are not able to explore given the limitations ofour data. The extraordinary density of private university trustee net-works may stem from their need for a partitioned resource space inwhich they can consider issues unique to themselvesfor example,management issues involving their large endowments. Alternatively, pri-vate universities may be engaged in increasingly direct competition witheach other and may use the network to reduce uncertainty.



26/30

At a more specific level, trustees may in some cases initiate and in

other cases endorse specific practices, such as compensation packagesfor presidents, taking equity positions in corporations built on facultypatents or copyrights, and professorial salaries (and compensation pack-ages). Information about such packages likely travels rapidly throughtrustee networks.

While we have limited our consideration of trustee networks to abasic description of ties, our ongoing work considerably extends thispresentation. Much of our work in progress employs more sophisticatedmeasures of the frequency and strength of these ties. Perhaps more im-portantly, however, we are moving toward specifying models that allowus to estimate the net impact of these linkages on outcomes such as fac-ulty salaries, extramural grant productivity, patent revenues, and a num-ber of other outcomes for capturing institutional behaviors.

The differences between networks of private and public trustees needfurther study. As indicated at the beginning of this article, the size of oursample makes us less than confident about our data. If our sample wereexpanded in either directionto include more corporations, more re-search universities, or boththe results might be very different. As wellas expanding our sample, we should explore alternative connections that

public universities may have to the new economy. For example, publicuniversities might be tied to regional or niche economies through a vari-ety of intermediating advisory boards at the level of colleges and/or cen-ters. Or public universities may be tied to the national and internationaleconomies through the boards of their foundations, creating tension be-tween publicly appointed regents/trustees and self-perpetuating founda-tion board members. Future research on interlocks will benefit from casestudies of board practices, as such studies may better illuminate the roleof network ties at the board and individual level. Case studies will also

further our understanding of the influence of university culture on thebuilding of ties, the role of board members associations beyond boardmemberships, and other linkages that support the creation of interlocks.

In sum, we have provided a descriptive picture of the interlocks be-tween members of public and private universities boards of trustees andtheir links to the economy. We discovered that private universities aretightly interlocked and separate from public university networks, whichare not closely interlocked. Private university trustees are more likely tobe aligned with technoscience in the new economy, and public univer-sity trustees are more likely to be aligned with financial corporations.However, to understand these networks better, we need to know how in-formation flows through them, discovering, as Stinchcombe (as cited inMizruchi, 1996) suggests, what flows across the links, who decides on



27/30

those flows in the light of what interests, and what collective or corpo-

rate action flows from the organization of links (p. 26). We exploredseveral practicesfaculty salaries, presidential pay packages, and tak-ing equity positions in start-up corporationsthat illustrate how knowl-edge might run through trustee networks. Future research in this arenawill benefit from empirical models that track the flows across the linksas well as from case studies of the role of interlocks in the decision-mak-ing processes of public and private boards.

Notes

1Many private boards make special provision for emerita board members to partici-pate in the regular business of the board, albeit without a formal vote.

2Another possibility is one in which a single university trustee holds seats on two ormore corporate boards. This possibility is captured in Figure 1. Our interest here is in thelinkage of the institutions through any trustee. As such, we do not attempt to attend topotential qualitative differences between the characteristics of relationships of the indi-vidual trustees.

3There is significant but not complete overlap of firms appearing on these lists. Of the119 institutions ranked either in the Fortune 1000 or the NSF 500, 62 ranked in NSF 500R&D and 107 ranked in the Fortune 1000. Fifty firms were found on both lists. So thevast majority of firms we identified are Fortune 1000 firms, and fewer than one half ofthese Fortune 1000 firms were also found to be on the NSFs list. Only 12 firms identi-

fied in our analysis were found exclusively on the NSF list.4Determining the number of trustees at private universities was not a simple task,

given the complex organizational arrangements of a number of boards. For example,Harvard has both a board of Overseers and the Corporation. The University of Pennsyl-vania has categories of board members that represent different institutional constituents.We were inclusive rather than exclusive, thus accounting for our relatively high num-bers.

5The strength of representation in the dog and cat food sector among private institu-tions is in large part due to strong ties between Washington University and Ralston Pu-rina. We identified six members of the Washington University board who were also di-rectors at Ralston Purina.

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