Corporate managers who express opinions that differ from those of their CEO may spoil their chances of being appointed to outside boards, according to recently published research. Ithai Stern (Assistant Professor of Management & Organizations at the Kellogg School of Management) and Kellogg graduate James Westphal (Professor of Business Administration and Strategy at the University of Michigan) have found that managers who engage in ingratiating behavior when interacting with their CEO are most likely to be recommended for seats on outside boards on which the CEO serves.
Populating a corporate board in this manner may result in a group unlikely to challenge upper management. Westphal and Stern explain that according to previous research, the culture of deferral to management has been a factor in corporate decisions that have resulted in many negative outcomes for shareholders, including poor corporate performance, accounting scandals, and white-collar crime. In spite of considerable pressure from institutional investors wanting boards to exercise more oversight, this culture has persisted because of the tendency for boards to consist of a circle of “insiders.” These insiders are typically privileged white men who have similar attitudes and ideas based on their shared experiences, such as education at elite institutions, membership in exclusive social clubs, and upper-class backgrounds. According to Westphal and Stern, this system perpetuates itself because of the widespread practice of appointing new board members on the recommendation of current board members.
In response to demands from external stakeholders, more people without the insider credentials of white race, male gender, and privilege have been appointed to corporate boards in recent years. Stakeholders expect diversity to encourage a greater range of ideas and increase the likelihood that board members will be able to exercise control over internal management to the benefit of shareholders. However, as Westphal and Stern explain, evidence now suggests that as more women and men of diverse racial, ethnic, and social backgrounds gain entry to the boardroom, the norms of social conformity are actually persisting. The researchers set out to find explanations for this counterintuitive result.
Their study involved 350 companies selected at random from the Forbes 500 index of large and mid-sized U.S. industrial and service firms. By surveying more than one thousand managers of these companies, Westphal and Stern measured the three components of ingratiating behavior described in social influence literature: other-enhancement, opinion conformity, and favor rendering. They sent similar surveys to the CEOs of companies in the sample, asking about each top manager’s behavior toward the CEO. To measure elite social and educational credentials of the managers, the researchers obtained demographic and biographical data on top managers from a variety of sources that have been used extensively in similar research, including Dun and Bradstreet’s Reference Book of Corporate Management, Standard and Poor’s Register, the Social Register, Marquis Who’s Who, corporate proxy statements, and annual company reports.
Two years after the initial survey, Westphal and Stern sent a questionnaire to directors who serve on nominating committees of companies in the sample. They asked the directors whether one or more CEOs who serve on the board had suggested that someone be nominated for an outside director appointment during the prior two years and, if so, who had made the recommendation and who was recommended.
The researchers found that ingratiating behavior was the strongest single predictive factor for obtaining board appointments. According to Stern, in a twelve-month period, challenging the CEO’s opinion on a strategic issue one fewer time, complimenting the CEO on his insight two more times, and doing one personal favor increased by 64 percent the likelihood of an appointment to a board where the CEO was already a director. Stern notes, “We were surprised by the sheer magnitude of the effect.”
Ingratiation provides a path to the boardroom for white men who lack elite educational credentials or upper-class social backgrounds. However, the importance of ingratiation in recommendations for future board appointments is even greater for managers who are female or ethnic minorities (Figure 1); they must engage in a particularly high level of ingratiating behavior to gain board appointments. According to Westphal and Stern, this is direct evidence of a subtle form of social discrimination faced by managers who are not both white and male. Their findings suggest that “while ethnic minorities and women who seek access to the highest level of the corporation do not come up against a ‘glass ceiling’ per se, they also do not receive equal treatment or consideration in the director selection process.”
Figure 1: Interaction between ingratiation and elite undergraduate degree
Westphal and Stern conclude that the current convention, by which many board members receive appointments on the recommendation of current board members, must change. Otherwise, corporate boards will not provide the kind of oversight that could enable them to be effective watchdogs for shareholders.