Outside directors in privately held Swedish small firms : Why are they recruited and how are they selected and integrated?

Abstract: Some small privately held Swedish firms have chosen to adopt outside directors, despite costs and potential risks. This paper aims to investigate the reasons for recruiting outside directors and how outside directors are selected and integrated. Two case studies of two firms in different industries have revealed that the reasons are connected to attaining market competency, competency to give objective advice and competency to make the board more active and primarily professionally structured. These were resources that both firms found as important. Additionally, operational competency was important for the IT firm. Attaining access to networks and legitimacy was also a reason to recruit outside directors for both firms, but only the Management Consulting firm claimed it to be important. This finding might reveal an industry difference. Our research has also revealed that the selection is done through social networks and a deciding factor in selecting a candidate is their fit, if they share the same value foundation, have an attractive personality, and if there exist personal chemistry. Finally our research has revealed that a key factor in the integration is providing partnership. Appointing another outside director was also beneficial for the integration in the Management Consulting firm.