How Shared Directors Can Prevent the Post-Investment Squeeze in Supply Chains

This article was written by Rebecca Hann and Musa Subasi.

Imagine you’re a supplier asked to build a component designed around one customer’s product—say, a smartphone part that must pass a particular brand’s testing regime, fit its design tolerances, and work inside its tightly integrated hardware-and-software ecosystem. Or picture a manufacturer that retools a production line to meet an automaker’s platform requirements—investing in equipment and processes that won’t easily transfer to the next customer.

These are the hidden bets behind many “strategic partnerships.” They can deepen collaboration and speed innovation. But they also create a common flashpoint: once the supplier has sunk the cost, the buyer often has more leverage to demand concessions—lower prices, faster turnaround, stricter terms—because the supplier can’t easily take that custom work somewhere else.

Contracts help, but they don’t cover everything. Designs change. Costs rise. Launches slip. Someone gets promoted, someone gets fired, and suddenly the tone shifts from “partnership” to “procurement.”

So how do firms keep these relationships from turning sour at exactly the moment the supplier becomes most vulnerable?

New research from the University of Maryland’s Robert H. Smith School of Business suggests some companies use a surprisingly practical tool: they connect the firms at the top—by sharing a director between the supplier’s board and the customer’s board. The study is coauthored by Smith accounting professors Rebecca Hann and Musa Subasi, along with Yue Zheng, a Smith PhD alum who is now a professor at HKUST. They examine when a supplier and customer share a board member—and what that connection appears to do in the real world.

When the risk rises, board ties appear

Their core finding is straightforward: Suppliers are more likely to share a director with a customer when the supplier’s innovation is highly tailored to that customer.

And the effect is strongest in a situation suppliers tend to fear most: When the buyer has lots of other suppliers to choose from. That’s when the threat of replacement feels most real. If you’re the supplier that just invested in custom tooling and a dedicated engineering team, you may worry that the buyer can use that sunk cost as bargaining power.

Hann puts it this way: “When a supplier has to make a big, customer-specific bet, a shared director can help the relationship feel safer. That person can keep information moving and help both sides talk through problems when something unexpected comes up.” 

That’s not a lofty theory. It’s a practical point about how deals actually break down. When problems hit—quality issues, delays, cost overruns—each side tells itself a story. A shared director is one way to reduce the odds that those stories diverge into a standoff.

Subasi points to the moment when things get tense: after the investment is already made. “Once you’ve committed to a customer-specific project, you don’t get a lot of do-overs,” he says. “A shared director can help keep everyone focused on solving the issue instead of turning every surprise into a leverage contest.” 

What shared directors seem to change

The study also asks what happens once these board ties exist.

One result: suppliers’ R&D investments become more closely aligned with the customer’s growth opportunities when they share a director. That suggests the relationship is stable enough—and information flows well enough—for suppliers to plan around where the customer is headed, not just react to purchase orders.

Another result: relationships with shared directors tend to last longer. In industries where switching suppliers is common, longer relationships are often a sign that both sides can absorb shocks without immediately turning to threats and penalties.

Zheng frames the story as less about friendship and more about reassurance. “It’s not that firms don’t want to collaborate,” she says. “It’s that specialized investments can leave one side exposed. Shared directors are one way companies seem to reduce that fear—and keep investing.”

Why it matters

Supply chains are becoming more specialized and more competitive at the same time. That combination makes customer-specific investments both more valuable and more dangerous. The supplier has to commit early. The buyer has options later. And the moment a project hits turbulence is often the moment the power imbalance shows up.

This research suggests a simple takeaway: sometimes trust isn’t just a feeling—it’s built into the governance. A shared director won’t replace a contract. But it may help prevent the classic post-investment squeeze by improving communication, speeding dispute resolution, and keeping long-term innovation from turning into a one-sided gamble.