Ideological homophily in board composition and interlock networks: Do liberal directors inhibit viewpoint diversity?

Abstract

AbstractResearch issueA consistent feature of social networks is homophily: the tendency for people to interact with similar others. Psychological and sociological research suggests that homophily is most pronounced along ideological lines, with conflicting evidence as to whether this tendency is higher among individuals who hold liberal or conservative beliefs. Based on this literature, we conduct the first study of ideological homophily in two key organizational networks: the intrafirm connections among directors on the board and the interfirm connections created by board interlocks.Research insightsIn a panel of 408 U.S. firms between 2000 and 2020, we find that liberalism increases homophily both within and between boards. Furthermore, we find that homophily has decreased over time but that this has been driven by conservative boards while the effect of liberalism has strengthened in recent years. These findings provide the first evidence for an ideological component in the composition of intra‐ and interorganizational networks.Academic implicationsMost research on director selection and interlock formation has focused on situational or demographic antecedents. Our findings contribute to the development of a broader theoretical framework that accounts for individual dispositional factors in these processes.Practitioner implicationsOur findings bring attention to the issue of ideological homogeneity in firms. Given the growth of homophilic tendencies among liberal directors in recent years, we suggest that it may be increasingly important for directors to become aware, and mitigate the effects, of their ideological biases in order to maintain cognitive diversity in information networks and decision making.