New research from the University of Notre Dame reveals a little-explored reason why board members sometimes resign: personal politics.
Directors are more likely to quit when they don’t share a new CEO’s ideology but will stick around when there’s political alignment, according to a study of S&P 500 companies led by John Busenbark, a professor of management at Notre Dame’s Mendoza College of Business. More than that, the flight response from board members who dislike a CEO’s politics is much stronger than the retention effect for directors who share a leader’s ideology, a finding that supports past psychological research.
“Human beings are disposed to dislike dissimilar others much more than they like people who are similar to themselves,” Busenbark tells Fortune.
His discoveries—which relied on political donations to determine whether a CEO or board member was more conservative, moderate, or liberal—are instructive for boards that value inclusion and trust that listening to diverse opinions leads to better decisions. Diversity of thought doesn’t necessarily follow demographic lines, though it can, says Busenbark, so directors should be aware of the knee-jerk instinct to reject differences.
Science shows that the antidote to this negative visceral reaction is exposure, the professor adds. The lesson for board members? If you loathe an incoming CEO, take the time to get to know them before bailing. And during a CEO search, embrace candidates whose ideologies don’t fully mirror your own.
Though Busenbark’s research showed that political extremism is uncommon in company leadership, and that CEOs are moderately conservative while board members’ politics tend to be more polarized, slight political differences can be enough to cause friction, if only on an unconscious level.
Notably, the new study only looked at data from 2008 to 2012, before CEO activism went mainstream. Far more directors today are paying attention to candidates’ political history during the recruiting process. That might lead to a push for even more moderate CEOs, those who won’t make waves, Busenbark theorizes. However, smart boards will resist that fate.
Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan
Noted
“Management's out of ideas and direction, and they forgot where they came from.”
—Claire Stapleton, a former internal communications leader for Google, joined the First Person podcast to discuss the tech sector’s decline
On the Agenda
👓 Read: Did Netflix make a strategic mistake in cracking down on password sharing, a popular “soft good” that comes along with/is part of its streaming service? The Atlantic thinks so.
🎧 Listen: The aforementioned interview with Claire Stapleton, former “Bard of Google,” is worth your time. She shares an insider’s view of how the tech giant cynically harnessed “purpose” and workplace culture to consolidate power.
📖 Bookmark: A top law firm answers the most commonly asked questions about the Securities and Exchange Commission's new insider trading rules.
Onboard/Offboard
Bath & Body Works, which is staring down a promised proxy fight with Dan Loeb’s Third Point, appointed Steve Voskuil, CFO at The Hershey Company, to its board. Apollo tapped former Pennsylvania Sen. Patrick Toomey as an independent director. Halliburton appointed two new directors: Janet Weiss, a former energy executive, and Maurice Smith, CEO of Health Care Service Corporation. Katharine Kelley, president of real estate developer Green Street was appointed to the Invesco Mortgage Capital board. Fawad Ahmad, chief digital officer at State Farm Mutual Automobile Insurance Company, is joining the Radian board. Occidental appointed Ken Robinson, a veteran finance, audit, and risk management executive, to its board.
In Brief
- Third Point plans to launch a board challenge at Bath & Body Works. In a letter outlining its questioning of the board’s competence, the hedge fund called out shoddy CEO succession planning and an $18 million bonus paid to the board’s chair, among other issues.
- People of color now represent 20% of corporate board seats, according to new data from ISS Corporate Solutions, which called this “a watershed moment for minority corporate directors broadly and Black directors in particular.”
- Profits are down, and margins are shrinking, but don’t freak out, writes Matt Phillips at Axios. While growth has slowed, which shouldn’t be a surprise, it hasn’t stopped.
- Forecasters say office vacancy rates will surge 55% by 2030 as more workers go remote and leave urban areas. Fortune examines what that means for commercial real estate.
- More mid-sized companies are hiring “fractional executives” to fill talent gaps. Think gig jobs for seasoned leaders who aren’t looking for full-time work or a permanent contract.
Editor’s Pick
Should you be in the mood to reflect on the future of business and board members’ potentially pivotal role within it, check out Vox’s recent interview with Malcolm Harris, author of the new book Palo Alto: A History of California, Capitalism, and the World. Harris discusses how California became “the last link in the chain” of capitalism’s development and the beginning of a new era where “[y]ou have technology from the start as your solution to problems.”
Harris paints a bleak picture of how Silicon Valley remade the world’s dominant economic system. But he also explains why that is and how those who sincerely want to change capitalism should rethink their approach. Hint: It’s not enough to convince individual business leaders or politicians of the need for reform.
Here’s a snippet:
“It’s not the job of agents of capital to use their personal discretion about what’s the most reasonable path. It’s to act out these impersonal injunctions about capitalist growth and accumulation. At a certain point, you realize you’re not dealing with someone who has the freedom of reason. You’re dealing with someone who’s acting out a set of impersonal instructions, and at that point you can stop negotiating.
You have to look at the actual struggle. How are you going to stop what’s going on? Not just, how do you convince someone that it’s not the best idea? Because all you’re going to do is convince somebody to quit their job, and then someone else is going to come in and do the job that they just quit. But that doesn’t mean that the system is closed forever.”
Listen to the full interview here or read an excerpt here, and have a great weekend.
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