Faults and Faultlines: The Effects of Board Faultlines on CEO Dismissal

• In Event: 1424 - Section on Economic Sociology Roundtables
  In Refereed Roundtable (60 min): Table 4. Work and Labor Markets

Abstract

Although poor firm performance is a major predictor of CEO dismissal, the relationship between firm performance and dismissal is often weak. We adopt a faultline approach to study how faultlines within the boards of directors moderate the relationship between firm performance and CEO dismissal. Faultlines can split a board based on the alignment of multiple attributes of individual directors and potentially create subgroups within the board. The presence of subgroups can increase conflicts among directors, eventually hampering the board’s ability to dismiss a CEO. Based on this logic, we analyze data from S&P 500 boards to examine whether faultlines within a board based on demographic or information-related attributes of directors affect the board’s ability to fire a CEO when firm performance declines.

Authors

• Taekjin Shin, San Diego State University

• Jihae You, Louisiana State University