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With Democrats in control in Washington, departing government officials may get cool reception from companies recruiting for boards of directors

November 1, 2008

For more information, contact: Benjamin Haimowitz, HHaimowitz@aol.com

For whom will Washington's loss be corporate America's gain?
 
The change of administrations in January will open the way for corporate boards across the country to recruit Bush administration cabinet officers and departing members of Congress to serve as directors. But a study in the current issue of the Academy of Management Journal suggests that the migration from Washington to America's corporate boardrooms will be somewhat diminished in the next year or two from what it has sometimes been in the past.
 
"Former government officials are much less in demand for company boards when their party is out of power," explains Richard H. Lester of Texas A&M, University, who carried out the study with Amy Hillman of Arizona State University, Asghar Zardkoohi of Texas A&M, and Albert A. Cannella Jr. of Tulane University. "Our research reveals that, if a party is shut out of both Congressional houses plus the executive branch, as Republicans will be, its members' chance of joining the board of a large corporation is almost one third less (29.4% less, to be exact) than would otherwise be the case."
 
The political exclusion, the researchers stress, has to be complete for this effect to occur. As the study puts it, "Only when the former official's party is completely out of power is there a significant depreciation in the value of the individual's human and social capital as it relates to obtaining outside directorships."
 
Reduced though the board prospects of departing Republicans may be, two points are all but certain, Prof. Lester says: 1) recruitment will be much greater than what it would have been several decades ago, and 2) the recruits will principally be former cabinet members.
 
Comments Lester: "In 1973, according to Korn/Ferry International, only 14% of large corporate boards included former high government officials -- that is, former cabinet officers or former members of Congress. In the following 25 years, that number increased to 53%, even while the average number of outside directors per board decreased from 16 to 9. The percentage rose to as high as 59% in 2003 then returned to 53% in 2006, the most recent year for which figures are available."
 
The main beneficiaries of this long-term trend, the study finds, have been cabinet officers. Other factors being equal, they were more than twice as likely as former senators, and more than five times as likely as former representatives, to be appointed corporate directors during the 16 years covered by the research, 1988 through 2003.
 
The professors monitored post-government careers of all cabinet officers and senators who departed government during this period plus that of 96 randomly selected former representatives. Forty-two of 66 former cabinet officers (about 64%) were appointed as outside corporate directors of at least one public company, compared to 29 of 74 senators (about 39%) and 13 of 96 House members (about 13.5%).
 
In addition to being more likely to get chosen at least once, cabinet members comprised 8 of the 11 former officials who were appointed to seven or more boards, as well as all of those appointed to 10 or more boards. This last group consisted of former Secretary of Labor Ann D. McLaughlin (13 boards) and former secretaries Frank Carlucci (defense), Samuel Skinner (transportation), Jack Kemp (housing and urban development) and Louis Sullivan (health and human services), each appointed to 10 boards. Among legislators, former Senator Daniel Evans of Washington led with eight boards, followed by former Senate Majority Leader George Mitchell and former House Majority Whip Tony Coelho, appointed to seven each.
 
Clinton-administration cabinet officers had fewer board appointments than those of prior administrations, in part because the study included only three post-Clinton years and also, perhaps, because Republicans controlled all levers of government during that time. But, now that the shoe is on the other foot, are Clinton-era Democratic former officials likely to enjoy a new measure of popularity among corporate boards?
 
Says Prof Lester: "In one way, our findings would seem to cast doubt on that, since we found that former officials are mostly recruited to company boards in the first two or three years after they leave government. But we also found that, particularly for former cabinet officers, there is a modest upswing in director appointments beginning five or six years after departure from government, which may have to do with expiration of board members' terms. Given the new dominance of Democrats in Washington, this upswing may very well turn out to be more pronounced for Clinton-era people than it was for officials of earlier administrations." 
 
The new study, entitled "Former Government Officials as Outside Directors: The Role of Human and Social Capital," is in the October/November 2008 issue of the Academy of Management Journal.  This peer-reviewed publication is published every other month by the academy, which, with about 18,000 members in 102 countries, is the largest organization in the world devoted to management research and teaching. The academy's other publications are the Academy of Management Review, Academy of Management Perspectives and Academy of Management Learning and Education.
Media Coverage:
Business Week. Out of Power, Out of Luck. (Monday, December 22, 2008).
BusinessWeek.com. Fewer Board Appointments for Bush Administration Departees. (Saturday, January 10, 2009).
Reuters Blogs. What's Next for Paulson, a Soup Line?. (Monday, November 24, 2008).
The Washington Post. Federal Diary: Republicans on Corporate Boards. (Wednesday, November 26, 2008).
USA Today. Are Businesses Feeling More Blue?. (Thursday, January 15, 2009).
usnews.com. Bush Cabinet Officials May Be Left Out in the Cold When They Enter the Private Sector. (Friday, November 28, 2008).

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