Balanced Scorecard diffusion from a social network perspective. The effects of interlocking directorates on the use of balanced scorecard practices

This study examines the influence of the social networks of the board of directors on the use of Balanced Scorecard (BSC) practices. Combining insights from research on social networks in management and literature on organizational innovativeness and accounting, our theoretical framework suggests that interlocking directorates influence the likelihood of BSC use. Modelling variation in the relationship between interlocking board members and making a distinction between different ways of BSC use, we measured the effects of the interlock ties of the executive and supervisory board members in a two-tier system on the use of the BSC as a strategic performance measurement tool in companies’ annual reports. Using data from 149 companies listed on the Dutch stock exchange, our results suggest that director experience with BSC practices on other boards influences firm’s use of the BSC. Firms with board members who have experience with BSC practices in other firms they are associated with, have a higher probability to use this strategic performance measurement tool in their own firm too. Experience of the CEO is relevant for information disclosure about customers, while members of the supervisory board, especially the chairman, seem to promote additional information about internal business processes and learning and growth. Direct correspondence to Geert Braam, Department of Economics, Radboud University P.O. Box 9108, 6500 HK, Nijmegen, The Netherlands. Phone +31 24 3613086; E-mail g. braam@fm. ru. nl The authors express their thanks for comments and suggestions received on previous versions of this paper from Jos Benders, Mahmoud Ezzamel, Paul Hendriks, Paula van Veen, the participants at the EAA 2008 and the RACC conference 2008, and Annelien Arnouts, Andy Defares and Mehment Akpolat for their research assistance.