You are here: Home / News Release Archives / 2013 / October / Research Examines Impact of Prestige on Corporate Board Dynamics

Research Examines Impact of Prestige on Corporate Board Dynamics

Adding prestige in the boardroom can come at a cost according to new research from authors at the Penn State Smeal College of Business.
October 18, 2013

Adding prestige in the boardroom can come at a cost according to new research from authors at the Penn State Smeal College of Business.

Though prestigious directors are often seen as indicative of a firm’s quality, Farrell Professor of Entrepreneurship Tim Pollock and recent doctoral graduate Abhijith Acharya found that adding more prestigious directors wasn’t always desirable. The costs associated—particularly with regard to established work routines and existing status hierarchies—eventually begin to outweigh the benefits.

“Prestigious directors are more likely than non-prestigious directors to assert themselves in ways that disrupt the current within-group status order and threaten others’ power and discretion.”

“Maintaining effective group processes can be particularly challenging for boards,” the researchers write. “Prestigious directors are more likely than non-prestigious directors to assert themselves in ways that disrupt the current within-group status order and threaten others’ power and discretion.”

Using data from more than 200 firms on the five years following their IPOs—when boards are typically most influential—the researchers identified several group-dynamic trends within corporate boards.

First, the researchers found that the more prestigious the existing directors, the more likely they would be to recruit additional prestigious directors because of their natural desire to associate with others like them. Over time, though, the effects of adding additional prestige were shown to diminish, partly because of the impact on group dynamics.

“The addition of a prestigious director has greater potential to be disruptive because it is more likely to affect the current social order,” write Pollock and Acharya.

But the researchers also found that boards that have worked together for a long time and have a solidly established working relationship are less likely to perceive a new director as a threat to that social order.

“Serving together for longer periods of time could create clarity and stability in the local social order that decreases the perceived threat of adding a prestigious new director,” they write.

Finally, the study found that a high-status CEO’s desire to recruit additional prestigious directors depended largely on the leader’s structural power within the firm. Though perhaps apprehensive about how the addition of a new prestigious director may affect his or her own “relative standing in the board’s status ordering,” those with greater structural and ownership power will be less likely to see the addition as a threat.

“Our analyses … showed that Founder-CEOs and CEOs with fewer outsiders on the board were more likely to recruit more prestigious directors, while CEOs that own larger percentages of stock were likely to recruit less prestigious directors,” the researchers write.

The article “Shoot for the Stars? Predicting the Recruitment of Prestigious Directors at Newly Public Firms,” forthcoming in the Academy of Management Journal, is authored by Penn State Smeal College of Business’ Tim Pollock, Farrell Professor of Entrepreneurship, and former doctoral student in Management and Organization Abhijith Acharya, now an assistant professor at Singapore Management University.

Recent News
Supply Chain's Preciado Honored for Teaching Excellence 29 Jul

Felisa Preciado, clinical associate professor of supply chain management, has been named the 2014 recipient of the Penn State Smeal College of Business Fred Brand Jr. Award for Excellence in Undergraduate Teaching.

Summer Business Program for High Schoolers Facilitates Diverse Penn State Network 28 Jul

The Business Opportunities Summer Session (BOSS) Program, facilitated by the Penn State Smeal College of Business’ Diversity Enhancement Programs, connects underrepresented high school students with current Penn Staters and alumni to provide an inside look at the business majors and beyond. Currently in its eighth year, the program is helping to create a powerful network as it continues to share the value of a Smeal education with a diverse population.

Why Aren't Consumers Buying Remanufactured Products? 28 Jul

Firms looking to increase market share of remanufactured consumer products will have to overcome a big barrier to do so, according to a recent study from the Penn State Smeal College of Business. Findings from faculty members Meg Meloy and V. Daniel R. Guide, Jr., indicate that consumers perceive many categories of remanufactured products as dirty and disgusting.

Penn State President Emeritus Rodney Erickson Joins Smeal Executive MBA Students in Celebration 25 Jul Penn State President Emeritus Rodney Erickson Joins Smeal Executive MBA Students in Celebration

About 30 students celebrated their completion of the Penn State Smeal Executive MBA Program last month in a pre-commencement ceremony held at the Business Building on Penn State’s University Park campus, with former University president Rodney Erickson delivering the commencement speech.

Smeal's Multimedia Team Recognized for Providing Valuable Student Service 24 Jul

A group of Smeal College of Business staff members were recently recognized for their efforts to provide students with professional portraits for their LinkedIn profiles. The Penn State Information Technology Resource Responsibility award was granted to the Resource, Instruction, and Information Technology (RIIT) Group’s Multimedia Team.

More Recent News... More Recent News...