Should your company have politicians on the board of directors?

The impact of political capital is surprisingly short-lived

by Gonçalo Pacheco de Almeida
Last Updated: 05 Feb 2024

Clientela and politics are as old as the origins of government – and are still alive and well today. In the last six years, a former president and two former prime ministers of the French Republic – Nicolas Sarkozy, Edouard Philippe, and François Fillon – were appointed to the board of directors of private companies (Accor, Atos, and Rosneft, respectively).

Several other (ex-)government officials have also served different companies in various capacities, including Anne-Marie Idrac, Fleur Pellerin, Hubert Védrine, and Noëlle Lenoir. The list is longer if we consider family members with direct access to politicians. 

This co-optation of current and past government officials and their close networks by companies to their governance bodies to acquire political capital and further private interests is frequent in most developed countries.

This is standard practice in the United States, with high-profile examples such as US vice-president Al Gore at Apple, the speakers of the House of Representatives Paul Ryan and John Boehner at Fox Corporation and Acreage Holdings(respectively), and the secretary of defence Leon Panetta at Oracle, among many others.

This exchange of favours between business and politics is often decried in the press as corruption, illegal favouritism, nepotism, and fundamentally anticompetitive and anti-democratic. The ‘pay-to-play’ business model of the corporate world has led to several public scandals involving high-ranked politicians and has raised legitimate questions about the promiscuity between private and public interests.

Yet, for all the media attention that this problem has received, is there unequivocal evidence that firms’ investments in corporate political activity do indeed offer a positive return on investment? 

Prior research has offered a partial answer to this question by examining data over short time periods. Its results suggest that there is no statistical evidence that companies that engage in corporate political activity (e.g., lobbying, campaign donations or board political connections) systematically exhibit higher profit rates than other companies. Indeed, results are inconclusive for aggregate measures of firm performance. 

But – if corporate political activity does not pay off in the short term – does it pay off in the long term? Contrary to initial expectations, the results revealed that the impact of political capital at the board level is surprisingly short-lived.

While companies with political connections do experience slightly extended periods of performance advantages, the effect is remarkably modest, with only a 2.4% increase in performance duration. This translates to just over two additional months of sustained competitiveness compared to companies without political connections. 

Intriguingly, the findings also exposed a nuanced reality—the lustre of political connections gradually fades after approximately seven-and-a-half years: after this period, political connections no longer help companies to sustain superior profitability.

One of the most striking results of the study is the short half-life of political capital also compared to other strategy interventions. For example, prior research has established that investments in R&D may increase performance sustainability by 16 months – an eightfold increase compared to what this study estimates as being the 2-month extension in performance advantages from political capital.

Arguably, R&D is the lifeblood of innovation, which allows firms to constantly adapt to today's fast-paced and rapidly evolving business landscape by launching new products or technologies. In contrast, most board political connections have an ‘expiration date’ that is often dependent on the transitory nature of the world of politics. 

In democratic systems, appointing politicians to the board of directors may not be an effective long-term strategy. Relying on these third parties for advice and influence appears to be overestimated. After all, Cicero was right all along when he famously once said: “No one can give you better advice than yourself”.

Gonçalo Pacheco de Almeida is a professor of strategy and business policy at HEC Paris

Picture by Getty Images/Benedek