The Pros And Cons Of A Social Network

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A network in today’s world can be seen as a social and professional. A social network today is as much important as a professional network and both of them contributes to the growth of a person. Similarly a director’s qualifications get contributed by his or her social as well as professional network. It is very important to study networks because these are like building blocks or connecting bridges which not only help in the growth of a person as important and useful networks can be sought for help and recommendations but networks are also useful in sharing information, influence and even support for individual or combined growth. Therefore, executives with a large network tend to be highly valued as director nominees. Google is an example of a company with a well connected board. Like every coin has two faces or everything has its pros as well as cons, networks are also not an exception. Inter-board connections have the potential to cause outcomes with negative effects that might impair economic value and reduce governance quality. 1. Spreading Bad Practices: Directors practicing one thing at a firm may bring it to other firms they are affiliated to. So the same practice that was having negative impact on one firm might get spread to others as well. 2. Spreading Bad Information: As we know that sharing of information can be very effectively done using networks, one might even use it to share bad information like information that is false in nature like false rumors. 3. Less efforts of a director: A well connected director will have affiliations to many firms and hence will sit on many boards. Such directors are called “busy directors”. Busy boards are correlated with higher executive compensation, reduced likelihood of termina... ... middle of paper ... ...ctions is being brought by other subjects. Example, information about opportunities regarding job often comes from friends, relatives and acquaintances. It was only in the last decade that it has been shown that incorporating models based on the network of job information provides new information regarding trends of unemployment, wages, etc. Economic tools and reasoning are useful in analyzing formation and influence of networks and some of these come from decision theory, behavioral economics, and game theory. In addition to the modeling tools that economics can provide, new econometric and statistical techniques are needed (and starting to emerge) to analyze networks. Do friends behave similarly because of their influence on each other, or are they friends because of their similar behavior or even because of something that indirectly relates to their behavior.
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