We conducted a study, recently published in the Academy of Management Journal, to learn more about a neglected dimension of board composition: the proportion of domain experts. That is, the percentage of directors whose primary professional experience is within a firm’s industry. Though companies can easily manipulate the proportion of directors with domain expertise when building a board or appointing new directors, we know virtually nothing about its effects on corporate performance. Common sense might suggest that the more experts, the better. Domain experts know the ins and outs of an industry and are highly skilled at assessing risks and opportunities. But our interviews with board members and CEOs in the banking industry—and decades of research on experts and teams—point to three factors that can compromise the effectiveness of expert-dominated boards, at least in some circumstances.
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