Political Ideology of the Board and CEO Dismissal Following Financial Misconduct

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Author Information : U. David Park (Whitman School of Management, Syracuse University)
Warren Boeker (Foster School of Business, University of Washington)
David Gomulya (Lee Kong Chian School of Business, Singapore Management University)

Year of Publication : Strategic Management Journal (Forthcoming)

Summary of Findings : Examining how the beliefs and values held by board members can influence their actions following financial misconduct, we find that politically conservative boards are more likely to respond by dismissing the CEO than are liberal boards.

Research Questions : 1) Why do some boards refuse to take serious action against CEOs who have committed financial misconduct?
2) How a board’s beliefs or assumptions may influence how they respond to organizational misconduct?

What we know : Past studies that examined the consequences of misconduct have focused on 1) agency-based explanations such as the role of board independence and the relationship between CEOs and their directors, and 2) situational view, examining how the severity of the misconduct, past firm performance, and media attention. While these studies offer important insights into why boards vary in their responses to misconduct, we depart from agency-centered or situational explanations to argue that such decisions may be fundamentally shaped by directors’ beliefs – how they perceive the misconduct and attribute blame – and what they view to be the correct course of action following misconduct.

Novel Findings : We investigate these questions in the context of US S&P 1500 firms that were charged with financial misconduct and required by the Securities and Exchange Commission (SEC) to restate their earnings within the 10-year period from 2003 to 2012. Our results demonstrate that board ideology matters, with conservative board members more likely to dismiss the chief executive following financial misconduct.

Implications for Practice : By examining board responses to organizational misconduct, this study extends our understanding of differences across groups of individuals and demonstrates the way in which political ideology can have an important influence on how proactive a board is in dismissing the CEO following financial misconduct.

Full Citations : U. David Park, Warren Boeker, and David Gomulya. Forthcoming. Political Ideology of the Board and CEO Dismissal Following Financial Misconduct. Strategic Management Journal

Abstract : Why do some boards refuse to take serious action against CEOs who have committed financial misconduct? Past work has directed attention to the antecedents of misconduct while largely overlooking this question. The relatively few studies that examined it have typically revolved around agency arguments. This study instead examines how the beliefs and values held by board members can influence their actions following financial misconduct. Focusing on political ideology, we argue that politically conservative boards are more likely to respond by dismissing the CEO than are liberal boards as the result of ideo-attribution and threat management tendencies. Using data from S&P 1500 firms that were involved with financial misconduct, we find support for our arguments while addressing sample-induced endogeneity and alternative explanations with additional analyses.

Examining how the beliefs and values held by board members can influence their actions following financial misconduct, we find that politically conservative boards are more likely to respond by dismissing the CEO than are liberal boards.

Uisung Park

Assistant Professor of Entrepreneurship at Whitman School of Management, Syracuse University
Professor David Park studies the intersection between corporate strategy and entrepreneurship, and has published papers in academic journals such as the Strategic Management Journal. Prior to his academic career, he was a co-founder of a high-tech company and Marine Corps officer. David Park received his Ph.D. from Foster School of Business, University of Washington, M.S. in International Business from Seoul National University and his bachelor's degree from University of Seoul.
Uisung Park
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