Board Interlocking, Knowledge Sharing and Firm Performance Reem Khamis, Allam Hamdan, Bahaa Awwad, and Majdi Alkababji Abstract This study aims to shed light on the role of board interlocking and the resulting knowledge sharing among board members and the role of this in improving companies’ performance. This study provides theoretical evidence that the board interlocking can have an actual role in the knowledge sharing and transfer among board members from various industries and cultural, religious, educational backgrounds, and therefore this will have an important impact on improving the performance of the company by opening new ideas, markets and opportunities. The current study can be the basis for a set of future studies that aim to identify the role of knowledge sharing and management at the level of the board of directors in improving the performance of companies. Keywords Board interlocking · Knowledge management · Firms performance 1 Introduction The behavior of board of directors can be explained through two basic theories: Agency theory and Resource Dependence theory. While the former seeks to understand the role the board of directors plays in the domination and control over firm decisions to reduce agency disputes between the parties of firm common interest [11], the latter helps in understanding the mechanism by which the board of director’s function in order to get foreign resources [25]. Most of the studies that discuss board of R. Khamis University College of Bahrain, Manama, Bahrain A. Hamdan (B) Ahlia University, Manama, Bahrain e-mail: allamh3@hotmail.com B. Awwad Palestine Technical University—Kadoorie, Tulkarm, Palestine M. Alkababji Al-Quds Open University, Hebron, Palestine © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Hamdan et al. (eds.), From Industry 4.0 to Industry 5.0, Studies in Systems, Decision and Control 470, https://doi.org/10.1007/978-3-031-28314-7_40 469 470 R. Khamis et al. directors focused on the agency theory, but [10] sees that this theory is unable to provide any practical evidence, due to the complexities of the milieu in which boards function. Because of this inability of agency theory, the resource dependence one highlights the significant role the boards play in limiting the skepticism related to tis functional environment. This study is mainly based on the resource dependence theory in an attempt to understand board interlocking. Most of the studies which dealt with the board interlocking issue were based on that theory which shows that firms resort to hiring members of boards of directors as a mechanism to run firm foreign resources and reduce skepticism surrounding the company. It also helps reduce transaction costs [24, 28]. This theory also explains many firm phenomena like: mergers and acquisitions, common investment processes, non-competition agreements, and exchange members of boards of directors. This theory sees that board interlocking relates companies to their environment and that reduces doubt cases in firms, helps it to develop, relates it to the surrounding environment, and consolidates its status [18]. Due to the scarcity of material and human resources, companies compete to get such resources in order to maintain their influence [4, 12]. Therefore, they go back to old methods to sustain that influence. Board interlocking is one of the common issues in many of the developing economies and becomes clearer when some members of the board of directors or executives are also members in other boards. Dooley [8] noticed that in the United States, since the thirties of last century, 90% of American firms have at least one member of their board working in more than one company. Davis in [7] discovered that, during the eighties of last century, 40 American companies had board members in seven other firms at least. In Canada, it was found that between 1964 and 1977 there were 1600 interlocking between companies [22]. Santos and Silveira [26] and Kayal et al. [19] tested 230 companies in Brazil between 2003 and 2005 and found that approximately 74% in 2003 and in 2005 69% of members had relations with other councils in Brazil. In 1997 there was 61% of interlocking among 200 big companies in Hong Kong, 69% in England and 64% in the U.S during the same period [2]. The rest of this paper has been organized as follows: the second part is concerned with the theoretical framework and literature review. The final part is concerned with conclusions, implications and future studies. 2 Literature Review These international tests which support boards of directors only aimed at the expected benefits as members of the boards utilized their names and personal relations to attract the necessary external resources to develop the company [17, 23, 24]. When the company decides to employ an expert in its board of directors, it expects that this expertise will provide the sources which help the company to organize its financial, and administrative status in order to be developed [24]. Thus, companies prefer to hire board members from other firms. It is also always in need for collective work Board Interlocking, Knowledge Sharing and Firm Performance 471 to achieve its aggregate interests [3, 27]. Companies remain in constant search for board members who play the same roles assigned for them in other organizations with one goal which is increasing the capital through a third party [18] as seen in the ability of the firm to get easy loans with competitive costs as a result of the companies relations with financial institutions which might help in improving performance. As for the relation between board interlocking and improving firm performance, Kim [21] studied this kind of relation in Korean companies and found evidence that such a relation improved performance. The study showed that there was an acceptable level of interlocking among boards of directors. This level helps to achieve the best performance, while increasing the level of such relation might harm the company performance [9]. Not only improving the company performance, but also interlocking of board of directors may improve the company relation with organization of civil community and give a good image of that company. Ribeiro and Colauto [25] see that board interlocking also aims at improving the company relation with the forcing social and environmental organizations. The firms, in their board of directors, employ members of those organizations to avoid procedures which might be taken against the company by such organizations and to shun through knowing the attitude of those organizations in advance. That, of course, helps the company maintain its good name in the society that has social and financial influences as well. In general, comprehending board interlocking leads to the understanding of several phenomena related to companies work, for example, Haunschild [16] noticed that mergers and acquisitions behavior between companies is related in a way or another to board interlocking. He conducted a study on 32 firms in the U.S and noticed that processes of merging or acquisition among companies are strongly related to the relation between board of directors of such companies. Ribeiro and Colauto [25] regarded board interlocking a continuous process of learning as that helps refine members experiences and knowledge exchange among them, through an informal way of learning by which they benefit from exchanging experiences and avoiding mistakes. It also helps them acquire an advantage of organizing and strategic planning which will be reflected in the management of the firm [20]. This learning and experience acquisition might not be always positive. Board interlocking might end up with unethical practices between firms as seen in earnings management with the intention of changing financial results of optional maturity. Some studies found a relation between board interlocking and the tendency of companies to adopt policies of earnings management as seen in the study of Chiu et al. [6], which he conducted in the U.S and that of Ribeiro and Colauto [25] conducted in Brazil. Connely and Slyke indicated that board interlocking leads to common practices between companies among which is earnings smoothing that aims at refining financial results. But this can’t be considered a common rule. Other studies on Canadian companies like that of Mindazk found a negative impact of board interlocking on reducing such practices [5]. The preceding lines highlighted the significance of board interlocking in company performance and its social responsibility, in addition to the negative things that might emerge as a result of this interlocking. It also opens horizons for local companies through which they can achieve their goals. Will the low level of 472 R. Khamis et al. foreign investment be an obstacle in the way of benefitting from board interlocking. Based on the problem of the study and resource dependence theory, hypotheses of this study can be formulated as follows: there is no impact of foreign ownership on the relationship between board interlocking and firm performance [1, 11, 14, 15]. 3 Conclusion Many factors influence firm performance; some of which are related to firm characteristics, internal organization, level of governance and the fund it can obtain. Other factors are related to the market where it works and to general economy of the country. Studies have recently begun to focus on the role of institutional governance on firm performance through discussing the best methods of organizing in order to secure firm removal of interest contradictions among those concerned as that helps the firm achieve its goals. Board interlocking, which is considered one of the best methods to which firms resort to extend cooperation bridges with the economic community, to get experiences and competences, to upgrade its organizational, operational, and financial efficiencies, were never given enough concern by studies. Past studies found empirical evidences on the significance of board interlocking in improving firm performance. References 1. Al Amosh, H., Khatib, S.F.A.: Ownership structure and environmental, social and governance performance disclosure: the moderating role of the board independence. J. Bus. Soc.-Econ. Dev. 2(1), 49–66 (2022). https://doi.org/10.1108/JBSED-07-2021-0094 2. Au, K., Peng, M.W., Wang, D.: Interlocking directorates, firm strategies and performance in Hong Kong: towards a research agenda. Asia Pac. J. Manag. 17(1), 29–47 (2000) 3. 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