View article

Research published in the Strategic Management Journal studied how boards respond when their firms perform poorly under CEOs that they hired in that role. The authors specifically examined whether boards with more directors who were present when the poorly-performing CEO was hired (referred to as “hiring directors”) have a more difficult time admitting the hiring decision was a mistake. As such, such boards would “escalate their commitment” to that CEO by retaining him/her longer and granting him/her more pay than boards with fewer hiring directors. The authors examined the change in CEO pay and likelihood of CEO dismissal for every S&P 500 company facing performance decline from 2005-2015. They found that each additional hiring director remaining on the board equated to a 25% higher change in CEO pay from the previous year and 25% decrease in likelihood of CEO dismissal. The authors did …