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Licensed professionals, such as accountants and lawyers, play a variety of roles when they sit on corporate boards. This paper sheds light on what role professional-directors play under what circumstances, and its consequences for corporate performance. We develop a two-dimensional framework, enabling us to identify the â€˜wise counselâ€™ role in relation to the professional-capital dimension, and the â€˜copâ€™ and â€˜entrepreneurâ€™ roles in relation to the risk-taking dimension. Using a dataset of all publicly quoted companies in Japan during 2004-2015, we demonstrate that the presence of professional-directors increases profitability and corporate value in all sectors, indicative of their â€˜wise counselâ€™ role. We also show that the presence of professional-directors leads to higher stock return volatility in regulated industries, evidence of their role as â€˜entrepreneursâ€™. By contrast, professional-directors lower stock return volatility in less regulated industries, indicative of their role as â€˜copsâ€™. Our theory and findings on the contingent effects of professional roles on firm performance have implications for corporate governance. They also shed light on a key question in strategic management, that is, the role of professionals as a specific type of resource in explaining performance heterogeneity.

Professionals on Corporate Boards: How Do They Affect the Bottom Line?