When corporate boards overlap, companies lose their edge
A new study finds that shared directors between rival firms stifle innovation and reduce profits.
Corporate boards exist to sharpen strategy, not dull it. But when competing firms share directors, innovation slows, and profits slip.
Virginia Tech and the University of Southern California researchers examined more than 4,800 public companies from 1990 to 2019. They found a clear pattern: Firms in industries with many overlapping directors filed weaker patents, produced more similar products, and delivered lower returns.
The study, forthcoming in the Review of Financial Studies and available via the Social Science Research Network, traces these effects to what the authors call “leaky director networks.” When board members sit on multiple rival boards, ideas don’t stay contained — they spread.
“Shared directors bring experience and networks,” said Felipe Cabezón, assistant professor at Virginia Tech’s Pamplin College of Business and co-author of the study. “But they also carry sensitive information between boardrooms. When ideas leak, companies’ strategies start looking alike.”
Overlapping boards, converging ideas
The study tracked how director networks shape corporate behavior. As firms shared more directors, their products became less distinct. Patent filings dropped in novelty and value, while research spending rose, suggesting companies invested more to keep pace.
The research team found that firms with shared directors experienced sharper declines in product differentiation, making their offerings increasingly similar to those of their competitors. At the same time, patent quality and overall innovation dropped, even as companies ramped up their research and development spending, suggesting they were investing more just to keep pace. Market valuations and returns on assets also lagged behind those of companies with fewer overlapping directors, further underscoring the financial costs of overlapping directorships.
“Dense director networks enable leakages to reach a larger fraction of competitors,” Cabezón said. “They promote imitation. And when every company chases the same ideas, the whole sector stagnates.”
How information slips between boards
In theory, directors owe each company their independent judgment. In practice, they carry knowledge from one boardroom to the next — even if they never mean to.
“When a director hears a strategy in one meeting, it’s hard to un-hear it in another,” Cabezón said. “Even unintentional influence can blur the lines between competitors.”
The researchers call this effect innovation herding — a gradual convergence of ideas that erodes differentiation and makes rival firms nearly indistinguishable.
The law exists, but no one enforces it
The Clayton Antitrust Act, passed in 1914, prohibits directors from serving on the boards of competing firms. But enforcement remains rare. In recent decades, regulators have pursued only a handful of cases.
In the meantime, director overlaps have grown more common. One high-profile case involved Apple and Google, when Steve Jobs accused board member Eric Schmidt of using iPhone concepts to shape Android. Jobs called it theft. The data now shows it’s part of a broader pattern.
“This isn’t just a few anecdotes,” Cabezón said. “The numbers tell us it’s structural.”
Why innovation loss hurts the bottom line
As firms grow more alike, competition weakens. Without product differentiation, companies lose pricing power. Profits shrink. Even firms without overlapping boards feel the effects, as industry-wide imitation spreads through shared networks.
“Once the network becomes dense enough, no one stays isolated,” Cabezón said. “Even firms that try to avoid overlap still absorb the consequences.”
What investors and policymakers should watch
Although firms may seek board talent to gain an edge, the researchers warn that overlapping directorships can inadvertently harm innovation across entire industries due to unavoidable information spillovers. The study also highlights a regulatory blind spot: corporate opportunity waivers.
Several states passed laws allowing directors to waive conflicts of interest, making it easier for them to sit on multiple boards. The researchers found that after firms adopted waivers, technology transmissions and innovation metrics declined further, and financial performance followed.
“Those waivers aimed to help startups attract board talent,” Cabezón said. “But they opened the door to broader information leakage.”
Sometimes, information sharing helps
Not all overlaps hurt. When directors sit on boards of complementary firms — say, firms in the same sector but that are not direct competitors — innovation can improve. Knowledge-sharing across non-competing companies can spark ideas and raise value on both sides.
But among direct competitors, the pattern flips. Shared directors accelerate imitation, reduce returns, and drain competitive advantage.
“Leaky director networks don’t always destroy value,” Cabezón said. “But when rivals share them, there is not much room for complementarities and they start stepping on each other’s feet.”
The bottom line: Similarity stifles success
Companies still want access to elite director networks. The problem? Everyone else does, too. Once the industry tilts toward sameness, no single firm can stand apart without losing access or influence.
“Each decision makes sense in isolation,” Cabezón said. “But together, they lead to a system where no one can protect their edge — and everyone ends up chasing the same ideas.”