Board Independence and Acquisitions of External Knowledge: Overcoming the NIH Syndrome

Abstract

The not-invented-here (NIH) syndrome, defined as a negative attitude toward outside knowledge, prevents organizations from absorbing external knowledge to generate further innovations. We argue that corporate-level actions can play an important role in neutralizing the NIH syndrome. In particular, we examine the role of independent members of boards of directors, given their monitoring and advisory functions. We hypothesize and show the existence of a positive link between the presence of independent directors on the board and the propensity to acquire outside knowledge. Furthermore, this relationship is more pronounced for companies that are more likely to suffer from the NIH syndrome and weaker when the independent directors’ monitoring power is limited by the power of the CEOs. Overall, our findings suggest that the effect is primarily driven by the supervisory function of the independent directors on the boards.