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When Divided Boards Select a Newcomer Chair

An article co-authored by Robert Langan, Ryan Krause, and GSEM Professor Markus Menz, published in the top-tier Journal of Management, explores why boards compromise in their leadership choices when internal divisions arise. The study finds that in situations when demographic subgroups within a board are strongly opposed and none holds dominant power, appointing a newcomer director as chair often emerges as a practical compromise.

The analysis of 2,199 board chair appointments at S&P 1500 firms reveals that this decision is influenced by CEO power and firm performance: a powerful CEO can steer decisions away from compromise, while strong performance amplifies subgroup contestation, making newcomer appointments more likely. These findings shed light on the sociopolitical dynamics shaping governance practices and contribute to a deeper understanding of leadership selection in complex board environments.

ABSTRACT

Prior research suggests that firm-specific human capital is important in enabling board chairs to effectively lead their boards in their oversight duties. Despite this, some boards appoint newcomer directors to the chair position. This paper seeks to explain why. Building on power circulation and faultline theories, we posit that boards characterized by strongly divided subgroups with none dominant over the board may have difficulty in agreeing on promoting a director from among their ranks to the chair position, and instead select a board newcomer as a compromise solution. We further argue that this will be moderated by factors that affect either the power dynamics or the degree of contestation on the board. Analyses on a sample of 2,199 board chair appointments at S&P 1500 firms between the years 2001 and 2017 support our hypotheses.

The study is available open access:

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