University of Groningen Nose In, Fingers Out Mostert, Irene

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University of Groningen

Nose In, Fingers Out

Mostert, Irene

DOI:

10.33612/diss.132018621

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Mostert, I. (2020). Nose In, Fingers Out: Essays on Board-Governance Effectiveness. University of

Groningen, SOM research school. https://doi.org/10.33612/diss.132018621

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CHAPTER 2

Understanding the nature of effective board functioning is among the most important areas of management research (Forbes & Milliken, 1999: 502)

INTRODUCTION

For decades, board independence has served as the metaphorical lightning rod in discussions of board-governance effectiveness (Dalton & Dalton, 2005: S91; see also Dalton & Dalton, 2011; Boivie, Bednar, Aguilera & Andrus, 2016). It is widely believed that independent boards are more effective because they are more objective and more willing to critically evaluate managerial decision making (Dalton, Hitt, Certo & Dalton, 2007; Fama & Jensen, 1983). However, extant empirical research has yielded conflicting and ambiguous results on this issue (Adams, Hermalin & Weisbach, 2010; Daily, Dalton & Cannella Jr., 2003; Dalton & Dalton, 2011). This paucity of consistent empirical findings has prompted calls for a richer and more nuanced behaviorally oriented understanding of boards (Johnson, Schnatterly & Hill, 2013; van Ees, Gabrielsson & Huse, 2009). Specifically, rather than focusing on a board’s structural characteristics, such as board independence, a behavioral perspective focuses on the interactions among top management teams (TMTs) and boards to better understand board-governance effectiveness (van Ees et al., 2009).

In this paper, we respond to these calls for such a more fine-grained examination of board functioning by explicitly acknowledging that, since boards do not operate in isolation from TMTs (Huse, 2005; Yoo & Reed, 2015), TMT characteristics are likely to impact board functioning. Particularly, we focus on how a central structural element of TMT composition, namely TMT tenure (cf. Katz, 1982), has an impact on board functioning (i.e., board monitoring and board advice giving; the two most important tasks of the board). Then, drawing on research on how individuals respond to task-related differences of opinion (i.e., cognitive conflict; Jehn, 1995) and research on board capital (Hillman &

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Dalziel, 2003; Haynes & Hillman, 2010), we maintain that the impact of TMT tenure is likely to be shaped by the behavioral dynamics operating between the TMT and the board – captured by cognitive conflict (Roberts, McNulty & Stiles, 2005; Zattoni & Cuomo, 2010) –, as well as the tenure of the board itself.3_{All in all, we advocate that when it comes to understanding what drives board functioning, a} nuanced view is warranted.

Specifically, we make several contributions in this paper. Firstly, we show that TMT tenure has a crucial impact on how boards perform their monitoring and advisory tasks towards TMTs. We highlight that TMTs accumulate more firm-specific knowledge and get acquainted with the inner workings of their organization as their tenure advances (see also Zald, 1969; Herrmann & Datta, 2002; Jermias & Gani, 2014), making it more difficult for boards to monitor high-tenured TMTs. At the same time, the TMT also generally becomes more devoted to established strategies over the course of its tenure (Finkelstein & Hambrick, 1990; Wowak, Mannor, Arrfelt & McNamara, 2016), making it more difficult to give advice to the TMT As such, given that TMT tenure may very well detract boards from monitoring and advising the TMT, it is surprising to note that very few studies have actually studied the impact of TMT tenure on both board monitoring and board advice giving. Our empirical examination of TMT tenure may therefore be considered as an important contribution to the extant governance literature.

Secondly, we demonstrate that cognitive conflict between TMTs and boards acts as an important behavioral contingency for the impact of TMT tenure. Cognitive conflict refers to disagreements related to the content of decisions, as differences in viewpoints, ideas and opinions and as a circumstance under which individuals’ tendency to scrutinize task-related issues increases (De Dreu & Weingart, 2003; Jehn, 1995). Interestingly, whereas governance scholars have acknowledged that cognitive conflict within boards may increase the quality of debate (e.g., Forbes & Milliken, 1999; Minichilli, Zattoni, Nielsen & Huse, 2012), cognitive conflict between TMTs and boards has been largely

3_{While we use the term ‘cognitive conflict’, research on conflict also uses the term ‘task conflict’ synonymously}

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left unexplored. This is surprising, since TMT-board cognitive conflict closely aligns with agency-theoretic arguments of the merit of an independent board that urges the TMT to discuss and justify its proposals with the board and to answer challenging questions (cf. Amason, 1996; De Dreu & Weingart, 2003). As such, our study provides important insights into how and when TMT-board cognitive conflict may help or hurt board monitoring and advice giving.

Finally, we see an important contribution of our paper in the way in which it illuminates how the interplay between TMT tenure, TMT-board cognitive conflict and board functioning is contingent on board tenure itself. Specifically, in keeping with the literature on board capital (cf. Hillman & Dalziel, 2003; Haynes & Hillman, 2010; Hambrick, Misangy & Park, 2015), we postulate that critical boards that, as a result of their high tenure, also have an in-depth understanding of the organization are better equipped to monitor and to provide advice – particularly when dealing with high-tenured TMTs. Although the merit of board tenure seems straightforward, it contrasts with regulation in European (e.g., the United Kingdom, The Netherlands, Spain) and Non-European countries (e.g., India, Malaysia, Singapore) that uniformly limits board tenure in and of itself. Accordingly, building on a unique multi-source dataset that incorporates survey data from board members of Dutch financial firms, this paper sheds a new light on the interactive effects of TMT-board cognitive conflict and board tenure on board functioning and demonstrates that reforms aimed at increasing the board’s critical stance towards the TMT may have unintended consequences that could very well reduce rather than increase board-governance effectiveness.

THEORY AND HYPOTHESES Board Monitoring and Board Advice Giving

Rooted in agency theory, board monitoring – sometimes referred to as the control task of the board (Hillman & Dalziel, 2003; O’Neal & Thomas, 1996) – hinges on the notion that there is goal conflict between top managers (i.e., agents) and shareholders (i.e., principals). For this reason, boards have to monitor the TMT to ensure that TMT does not act at the expense of shareholders (Eisenhardt, 1989;

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Fama & Jensen, 1983). The board’s monitoring task includes activities such as overseeing the formulation and implementation of corporate strategy as well as the selection, remuneration, evaluation, rewarding and, when needed, dismissal of top managers (Shivdasani & Yermack, 1999; Hillman & Dalziel, 2003). In this view, board independence is crucial for board-governance effectiveness because independent directors are believed to more objectively monitor managerial decision making and to better safeguard shareholders from managerial misappropriation.

In addition to monitoring, advice giving – sometimes referred to as the service task of the board (Hillman & Dalziel, 2003) – is another important task of the board. Drawing from resource dependence theory (Pfeffer & Salancik, 1978), various scholars suggest that boards bring resources to the organization by giving advice to the TMT on important topics, such as possible strategic opportunities (Westphal, 1999; Faleye, Hoitash & Hoitash, 2011). These resources encompass experience, expertise as well as, for instance, access to information from other firms and external contingencies to support managerial decision making. While advisory activities can span a variety of activities, as noted by Hillman and Dalziel (2003: 386), “the theoretical tie between these various [advisory] activities is that they all focus on the board as a provider of resources, rather than as an evaluator of management”. As such, the underlying denominator of advice giving is – in contrast to board monitoring – collaboration and goal alignment between the TMT and the board (Sundaramurthy & Lewis, 2003; Westphal & Stern, 2007). Scholars in other disciplines including finance, accounting and management also use these conceptual differences between the monitoring and collaborative approaches to identify the conditions that favor one approach over the other (e.g., Demski & Feltham, 1976; Faleye et al., 2011; Sprinkle, 2003; Van Veen-Dirks, 2010; Bruynseels & Cardinaels, 2014).

While there are important underlying conceptual differences between monitoring and advice giving, it is also important to note that in practice, these tasks are not antithetical and may often overlap (see, for instance, Hillman & Dalziel, 2003; Hambrick et al., 2015). Nevertheless, in helping to develop a nuanced understanding of board functioning, we believe that important conceptual

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differences between monitoring and advice giving may prove instrumental in discerning what factors may differently shape monitoring and advice giving.

TMT Tenure

TMT tenure qualifies as a construct with an important theoretical footing in research on organizational demography and board governance (Finkelstein & Hambrick 1990; Johnson et al., 2013). Specifically, by the very nature of their internal position, top managers accumulate more firm-specific knowledge and get acquainted with the inner workings of the organization over the course of their tenure (McNulty & Pettigrew, 1996; Jermias & Gani, 2014; Herrmann & Datta, 2002). That is, whereas board members generally have their primary affiliation elsewhere and mainly learn about the organization episodically via board meetings and discussions with the TMT (Forbes & Milliken, 1999), top managers develop a thorough understanding of the firm’s operations due to their direct exposure to the firm’s affairs on a day-to-day basis (Finkelstein, 1992; Westphal & Zajac, 2001; Zald, 1969). This therefore puts the board at an informational disadvantage, especially when the TMT’s tenure advances (cf. Hendry & Kiel, 2004). In this vein, Lorsch (1995) notes that the possession of superior knowledge about the organization provides the TMT with a serious information advantage over the board.

Also to perform their monitoring tasks, boards often need to rely on the information provided by the TMT (Roberts et al., 2005; McNulty & Pettigrew, 1996; Westphal & Zajac, 1995; Stiles & Taylor, 2001). Accordingly, this informational disadvantage vis-à-vis the TMT can be considered as an important barrier for boards to effectively monitor top managers. Moreover, since this informational disadvantage is likely to even further increase as TMT tenure advances due to the fact that top managers accumulate more firm-specific knowledge over the course of their tenure (see also McNulty & Pettigrew, 1999; Pozen, 2010), we anticipate that it becomes more difficult for the board to monitoring high-tenured TMTs. In this respect, Kor (2006) indeed notes that high-tenured managers are likely to possess superior firm-specific knowledge, which puts the board at an information

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disadvantage and limits the board’s ability to monitor and control high-tenured TMTs. We, therefore, hypothesize that TMT tenure is negatively associated with board monitoring.

Hypothesis 1a: There is a negative association between TMT tenure and board monitoring.

At the same time, TMT tenure may also affect TMT’s proclivity to seek, and to be open to, advice. This is because, in addition to becoming more knowledgeable about the organization, increased tenure may also affect top managers’ cognitions and decision making. This perspective was originally advanced by Katz (1982) who suggested that high tenure is associated with cognitive entrenchment (i.e., greater rigidity in decision making and limited awareness of alternative solutions; see also Hambrick, Geletkanycz & Fredrickson, 1993; Golden & Zajac, 2001). In line with this perspective, research on decision making similarly shows that high-tenured individuals seek and rely more on information that is in line with previously made decisions than on information that conflicts with these decisions (Greitemeyer & Schulz-Hardt, 2003) and that high-tenured individuals are less open to new ideas compared to when they first joined the organization (Pfeffer, 1983).

Also research on TMT tenure has demonstrated that high-tenured managers are likely to grow entrenched as they develop fixated cognitive schemas about strategic decision making (Kor, 2006; Zhu, 2013). In fact, multiple studies show that extended tenure is likely to result in TMTs becoming less open to alternative solutions, different views and proposed changes to organizational strategy (cf. Shen, 2003; Finkelstein & Hambrick, 1996). Building on these studies, we therefore expect that high-tenured TMTs to be less likely to seek, and be open to, board advice (cf. Shen, 2003; Finkelstein, Hambrick, & Cannella Jr, 2009). This may be problematic because, when it comes to advise giving, Hooghiemstra and van Manen (2004: 320) strikingly note that when top managers are not open to board advice, the (advisory) “role of directors has ceased”.

In addition to the arguments presented above, research also shows that TMTs generally develop confidence in the correctness of their own views (Kor, 2006; Walters, Kroll & Wright, 2007; Finkelstein & Hambrick, 1990), favor the status quo (Westphal & Zajac, 1995) and are more likely to

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resist board involvement as their tenure advances (Finkelstein et al., 2009). Moreover, the literature on helping behavior suggests that individuals feel more comfortable to offer advice to people who are open to it (Shah & Jehn, 1993; Anderson & Williams, 1996). This implies that in addition to TMT’s reduced openness to board advice, boards might also be less likely to offer such advice to high-tenured TMTs. For these reasons, we hypothesize that TMT tenure is negatively associated with board advice giving.

Hypothesis 1b: There is a negative association between TMT tenure and board advice giving.

The Moderating Role of TMT-Board Cognitive Conflict

As noted, cognitive conflict refers to differences in viewpoints, ideas and opinions related to the content of the tasks being performed (Amason, 1996, Jehn, 1995). Research on groups shows that cognitive conflict is likely to increase group members’ tendency to scrutinize task-related issues, to engage in deep and more deliberate processing of task-relevant information (Jarzabkowski & Searle, 2004; De Dreu & Weingart, 2003) and to foster the development of new and more creative insights (De Dreu & West, 2001). In line with these findings, several studies suggest that cognitive conflict improves the quality of debate within TMTs and within boards by building on a more diverse set of perspectives and by considering a broader range of alternatives (Forbes & Milliken, 1999; Minichilli, Zattoni & Zona, 2009; Minichilli et al., 2012).

When examining board functioning, however, it is important to realize that boards do not act in a vacuum but, instead, carry out their monitoring and advisory tasks towards the TMT (Huse, 2005; Yoo & Reed, 2015). As such, although cognitive conflict within boards may increase the quality of debate within boards in its own right (Forbes & Milliken, 1999; Minichilli et al., 2012), when it comes to how boards carry out their tasks vis-à-vis the TMT, cognitive conflict between TMTs and boards more fully captures management-board critical interactions (see also Kor, 2006). In this respect, Forbes and Milliken (1999:494), for instance, note that cognitive conflict can enhance the board’s enactment of its monitoring duties because it requires “CEOs to explain, justify, and possibly modify their positions

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on important strategic issues”. Similarly, Roberts et al. (2005) argue that behaviors such as challenging, questioning, probing and discussing with the TMT are at the very heart of how boards seek to be effective.

Specifically, since cognitive conflict between the TMT and the board forces the TMT to explain its views to, and to share information with, the board, it enables boards to more thoroughly evaluate TMTs’ underlying assumptions and to garner a better understanding of the issues at hand (cf. Amason, 1996; Amason & Sapienza, 1997; Forbes & Milliken, 1999). In this vein, Minichilli et al. (2009) note that asking TMTs discerning questions allows boards to enhance their monitoring of TMTs because task-related disagreements require TMTs to provide more detailed information and explanation on their decision making. Furthermore, TMT-board cognitive conflict can also serve to remind TMTs of the formal role of boards, making TMTs more prone to prepare the information boards need before meetings (Forbes & Milliken, 1999; Minichili et al., 2009).

As argued above, TMT tenure can place boards at a relative informational disadvantage in monitoring TMTs because boards are generally less knowledgeable about the business than high-tenured TMTs. However, since cognitive conflict between the TMT and the board requires the TMT to exchange information and to more fully discuss, explain and justify its actions and strategic proposals with the board, we anticipate that, with higher levels of TMT-board cognitive conflict, the board is likely to become more knowledgeable about the specific details and to develop a more in-depth understanding of the situation (see also Pelled, Eisenhardt & Xin, 1999; Olson, Parayitam & Bao, 2007). As such, we expect that TMT-board cognitive conflict attenuates the negative association between TMT tenure and board monitoring.

Hypothesis 2a: TMT-board cognitive conflict attenuates the negative association between TMT tenure and board monitoring.

While TMT-board cognitive conflict may alleviate the negative impact of TMT tenure on board monitoring, it may have a different effect on the association between TMT tenure and board advice

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giving. As adhered to above, we expect that TMT tenure results in top managers growing cognitively entrenched (i.e., being less receptive to different views and proposed changes to their organization’s strategies), thereby reducing their tendency to seek, and be open to, board advice. However, we also noted that the aim of TMT-board cognitive conflict precisely is to compel the TMT to consider multiple viewpoints, alternative perspectives and different courses of action. As such, TMT-board cognitive conflict may pose problems for the board’s advisory task when dealing with high-tenured managers. In this respect, research in fact demonstrates that when individuals have developed ownership of their viewpoints and ideas, cognitive conflict may even exacerbate their commitment to previously established viewpoints (de Wit, Jehn & Scheepers, 2013; Janssen, Van de Vliert & Veenstra, 1999) and may increase their defensiveness (de Wit et al., 2013).

Accordingly, given that TMT-board cognitive conflict is likely to exacerbate high-tenured managers’ commitment to their previously established viewpoints, it may actually further reduce high-tenured managers’ proclivity to seek, and be open to, board advice. In line with this notion, Sundaramurthy and Lewis (2003) indicate that an increase in the TMT’s defensiveness towards the board may be problematic, since the board’s advice giving task requires an open, collaborative and trusting relationship with the TMT. For these reasons, we hypothesize that TMT-board cognitive conflict exacerbates the negative association between TMT tenure and board advice giving.

Hypothesis 2b: TMT-board cognitive conflict exacerbates the negative association between

TMT tenure and board advice giving.

In sum, we argue that whereas TMT tenure is negatively associated with both board monitoring and advice giving, TMT-board cognitive conflict may impact these associations differently. The next important question therefore is how boards can counteract these differences, such that boards remain able to both monitor and advice high-tenured TMTs. The answer, we propose, may lie in the tenure of the board itself.

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The Moderating Role of Board Tenure

When examining board functioning, it is imperative to realize that an important factor in the board’s capacity to assess managerial decision making is the boards’ knowledge about the organization and its operations (Zald, 1969). In this respect, multiple scholars have identified board tenure as a crucial element in acquiring such firm-specific knowledge and experience (De Maere et al., 2014; Hambrick, 2007). Specifically, they argue that newly appointed board members start their board position with a knowledge deficit but, with each passing year in office, acquire a more comprehensive understanding of the organization (see also Veltrop, Molleman, Hooghiemstra & van Ees, 2018; Westphal & Zajac, 1995). This is important because – as noted – top managers generally have a more in-depth understanding of the organization through their day-to-day involvement in the organization, which makes it difficult for boards without this knowledge to scrutinize managerial decision making and to influence the decision process (McNulty & Pettigrew, 1999; Pozen, 2010; Stiles & Taylor, 2001).

As such, to be able to effectively monitor the TMT, boards need to be knowledgeable about the organization and its operations. Specifically, regarding board monitoring, we argued that (a) the informational disadvantage vis-à-vis the TMT can be considered an important barrier for boards to monitor high-tenured managers and that (b) TMT-board cognitive conflict urges the TMT to exchange information with the board, therewith attenuating this negative association. However, in this respect, it is important to realize that boards are unlikely to ask the right questions or interpret TMT’s answers correctly without a solid understanding of the organization and its operations (cf. Hambrick et al., 2015; Roberts et al., 2005; Kor & Sundaramurthy, 2009). In line with this perspective, Roberts et al. (2005: S13) argue that a prerequisite for directors to be effective in questioning the TMT is to become knowledgeable of the company’s people and business. They quote a director noting, “I think the concept of a non-executive sitting outside, knowing nothing about the business, acting as a policeman is completely wrong. They would not even know what to police”. This is in line with Demb and Neubauer’s (1992) seminal work, which stressed that for boards to be able to provide critical judgement, boards need to possess an in-depth knowledge of the company affairs. In a similar vein,

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Kor and Sundaramurthy (2009) argue that longer-tenured boards have more knowledge of top managers’ skills and personalities, which enhances their capacity to more accurately interpret the information they receive from these managers. Accordingly, building on the notion that vigilance without experience is unlikely to result in increased monitoring (Kroll et al., 2008), we anticipate that the extent to which TMT-board cognitive conflict attenuates the negative association between TMT tenure and board monitoring depends on the tenure of the board itself. That is, boards seeking to challenge high-tenured TMTs more likely results in increased monitoring if boards have an in-depth understanding of the organization themselves. Formally, we hypothesize:

Hypothesis 3a: Board tenure strengthens the positive moderating effect of TMT-board cognitive conflict on the association between TMT tenure and board monitoring.

Furthermore, regarding board advice giving, we argued that (a) high-tenured managers are likely to grow cognitively entrenched and that (b) TMT-board cognitive conflict might even exacerbate their commitment to previously established viewpoints. However, in this respect, it is noteworthy that the literature on advice giving demonstrates that individuals generally perceive advice offered to them as more helpful, and less intrusive, if offered by an expert source (Goldsmith & Fitch, 1997). In line with this perspective, research on boards shows that possessing in-depth knowledge about an organization is regarded as a necessary condition for advice giving, as it increases the board’s credibility towards the TMT (Forbes & Milliken, 1999; Hillman & Hambrick, 2003; Roberts et al., 2005; Zhu, 2013; Feldman & Montgomery, 2015). Roberts et al. (2005), for instance, found that when boards lack an intimate understanding of organizational affairs and, as a result, ask the wrong questions, managers become frustrated and, in response, seek to minimize board involvement. In a similar vein, a top manager quoted in Sonnenfeld, Kusin and Walton (2013: 102) notes that “(i)f you don’t take the time and effort to learn the business, I can’t really have a dialogue with you”. Building on these findings, we expect that although the board’s understanding of the organization may not fully take away high-tenured managers’ tendencies to minimize advisory interactions, high-high-tenured TMTs are more inclined to see merit in board advice when boards have an in-depth understanding of the organization than

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when boards are less knowledgeable and potentially even see flaws in the organization where there are none. This implies that TMT-board cognitive conflict is less likely to exacerbate the negative association between TMT tenure and board advice giving when board tenure is high, because high-tenured boards have the potential to aid TMTs in undertaking profitable strategic changes, to point their attention to the most important areas for consideration or to offer valuable counsel in general. All in all, we hypothesize that:

Hypothesis 3b: Board tenure weakens the negative moderating effect of TMT-board

cognitive conflict on the association between TMT tenure and board advice giving.

Figure 2.1 shows an overview of this study’s research model:

FIGURE 2.1 Conceptual Model

METHOD Research Setting and Sample

Our sample consists of 102 Dutch banks and insurance companies. These organizations all have a two-tier governance structure in which (executive) managers reside in a management board (i.e., TMT) and the (non-executive) directors reside in a supervisory board (i.e. the board). Despite the formal difference between a one-tier and a two-tier structure, the tasks that non-executive directors perform

TMT Tenure TMT-Board Cognitive Conflict Board Monitoring Board Advice Giving Board Tenure + - + + - -

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within a one-tier board are similar to the tasks of the members of a supervisory board (Veltrop et al., 2018). The main tasks of the supervisory board are to monitor the policies of the management board and the general organization and to assist management by giving advice (Principle III.1, Dutch corporate governance code, Principle III.1, Dutch civil law book 2 title 3, article 63f).

Procedure

One of the most challenging aspects of research on boards of directors is securing access (Leblanc & Schwartz, 2007). We obtained endorsement from De Nederlandsche Bank (The Dutch Central Bank, DNB) – i.e. the micro-prudential supervisor of banks and insurance companies – and also garnered endorsement from two key interest groups for banks (De Nederlandse Vereniging van Banken, Dutch Banking Association) and insurance companies (Het Verbond van Verzekeraars, Dutch Association of Insurers). Garnering endorsement from these parties was a labor intensive and time-consuming process. However, we felt that without this endorsement, board members would be hesitant to participate, making it difficult to conduct our research. To further maximize the potential response rate, we followed procedures that have been shown to increase response rates, such as pretesting the survey on a panel of financial sector experts to improve the appearance of the survey instrument as well as sending two rounds of personal reminders to non-respondents (e.g., Westphal & Stern, 2007). We distributed surveys to 278 board members of 52 banks in the fall of 2012 and to 408 board members of 100 insurance companies in the summer of 2014, which are all banks and insurance companies that were registered with DNB, excluding institutions with no material activities. Respondents were informed that their answers would not be made available to their fellow board members or to the supervisors of DNB. In total, 92 board members (33%) of 26 banks (50%) participated and 193 board members (47%) of 76 insurance companies (76%), resulting in a total response of 285 (42%) board members of 102 organizations (67%). Although gaining access is a challenging aspect of research on boards – and the financial sector is no exception in this respect – these response rates are quite high in comparison to other surveys on corporate elites (cf. Pettigrew,

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1992). To assess the representativeness of the sample, we compared board characteristics in the sample with those excluded from the sample due to non-response. Specifically, and consistent with, for instance, Westphal and Bednar (2005), we used the Kolmogorov-Smirnov two-samples test, which indicates whether the distributions of a variable for two samples are comparable. At the board level, this test did not reveal any statistically significant differences between the responding and non-responding boards in terms of board size, gender, age and tenure (p-value > .46). Also at the individual level, we did not find any statistically significant differences between responding and non-responding board members in terms of gender, age and tenure (p-value > .11).

Measures

Board monitoring. Board monitoring was measured with Carpenter and Westphal’s (2001) measure of board monitoring. Board members rated “To what extent does the supervisory board monitor the management board’s strategic decision making?”4_{“To what extent does the supervisory} board formally evaluate the management board's performance?”, and “To what extent does the supervisory board defer to the management’s board judgment on final strategic decisions? (reverse-coded)” These items were rated on a seven-point scale (1= minimally, 7= very much so)5_{. We excluded} the reverse-scored item, since reliability analyses showed that this item severely reduced the convergent validity. While unexpected, psychometric research suggests that, amongst others, reverse-coded items are generally more difficult to answer and may impact the underlying factor structure of constructs (Steenkamp & Burgess, 2002; Hughes, 2009). The Cronbach alpha of the remaining two board monitoring items was .63. However, when using measures with only two items, it is more informative to report the inter-item correlation (Ehrhart, Ehrhart, Roesch, Chung-Herrera, Nadler & Bradshaw, 2009), since the number of items has a profound effect on Cronbach’s alpha (Cortina, 1993).

4_{In line with the Dutch two-tier governance structure, we refer to supervisory board and management board in}

the items.

5_{For all variables in this dissertation that consist of multiple survey items, a mean-score is calculated to reflect}

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The inter-item correlation was .50, which is considered appropriate for items belonging to the same scale (Nunnally, 1978).

Board advice giving. Board advice giving was measured with Carpenter and Westphal’s (2001) measure of board advice giving. Board members rated “To what extent does the management board solicit the supervisory board’s assistance in the formulation of corporate strategy?”, “To what extent are supervisory board members a ‘sounding board’ on strategic issues?” and “[In the past twelve months:] To what extent have supervisory board members given advice and counsel to the management board on strategic issues?” These items were rated on a seven-point scale (1= minimally, 7= very much so). The Cronbach alpha was .82.

TMT tenure. We defined TMT tenure as the average number of years top managers worked for the organization. Information on tenure was obtained from the Dutch Chamber of Commerce.

TMT-board cognitive conflict. We measured TMT-board cognitive conflict by adapting Jehn and Mannix’s (2001) three-item cognitive-conflict measure to reflect the extent to which board members are carefully noticing potential problems and discussing these problems with the TMT. That is, board members rated “How much conflict of ideas is there between the supervisory board and the management board?”, “How frequently do the supervisory board and the management board have job related disagreements?” and “How often do the supervisory board and the management board have differences of professional opinion?” These items were rated on a seven-point scale (1= minimally, 7= very much so). Cronbach’s alpha was .86.

Board tenure. We defined board tenure as the average number of years that board members had a position in the supervisory board. Information on tenure was obtained from the Dutch Chamber of Commerce.

Control variables. We included several control variables. First of all, we controlled for differences in board size because board size may increase the available pool of knowledge and expertise within the board needed to carry out its tasks (Ruigrok, Peck & Keller, 2006). Second, we controlled for the percentage of female board members because gender diversity has been found to

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affect board dynamics (Terjesen, Sealy & Singh, 2009). Furthermore, we initially also included several additional control variables. Specifically, we included a dummy variable to control for potential differences between banks and insurance firms and we controlled for the board members’ age, since older board members may be less likely to initiate changes (cf. Wiersema & Bantel, 1992; Bantel & Jackson, 1989). Furthermore, to alleviate the potential concern that the results are inadvertently driven by dispersion in tenure rather than average level of tenure, we also controlled for dispersion in managers’ and board members’ tenure by including the coefficient of variation, calculated as the standard deviation of tenure divided by its mean (cf. Harrison & Klein, 2007). However, since none of these additional control variables were significantly related to board monitoring and advice giving, nor conceptually related to our proposed theoretical model and because the results presented in this paper remain substantively the same when including these additional control variables, we follow Becker (2005) and exclude these non-significant covariates to avoid biased parameter estimates.

Aggregating Board Members’ Responses to the Board Level

We framed all items at the board level, asking board members to evaluate their board rather than their own personal behaviors or attitudes (Simons, Pelled & Smith, 1999; Van der Vegt & Bunderson, 2005). We calculated the rwg(j) inter-agreement coefficient for multi-item indices (James, Demaree & Wolf, 1984; 1993) and intra-class correlation coefficient (ICC1) to determine whether aggregation to the board level was accurate. When interpreting values for ICC1, researchers are encouraged to adopt traditional conventions used when interpreting effect size. Specifically, a value of .01 is considered a small effect, a value of .10 is considered a medium effect, and a value of .25 can be considered a large effect (LeBreton & Senter, 2008; Bliese, 2000). For monitoring, the median rwg(j) value was .60

compared against a highly skewed distribution and the ICC1 score was .21 (p<.001). For advice giving, the median rwg(j) value was .84 compared against a highly skewed distribution, and the ICC1 score was

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a highly skewed distribution, and the ICC1 score was .24 (p<.001). These values indicate that the evaluations by multiple board members from the same board converge.

Discriminant and Convergent Validity

We used confirmatory factor analysis to assess the discriminant and convergent validity of the scales used in the hypothesized model. We computed parameter estimates using the AMOS 24 computer package with the maximum likelihood method. We first tested a model with the three intended constructs (board monitoring, board advice giving and TMT-board cognitive conflict). The overall fit of the model was adequate (χ2= 38.96, df= 17, p= .002), the goodness-of-fit index (GFI) was .92, the comparative fit index (CFI) was .93, and the root mean square error of approximation (RMSEA) was .11 In addition, the factor loadings were all significant at p<.001. To evaluate the discriminant validity of our measures, we tested three alternative models. For the first alternative model, all board monitoring and TMT-board cognitive conflict items loaded on one latent construct and one latent construct for advice giving (Δ χ2= 62.65 df= 2, p<.001, GFI= .80, CFI= .75, RMSEA= .21). The second alternative model contained one latent construct for all board monitoring and advice giving items and one latent construct for TMT-board cognitive conflict (Δ χ2=20.42, df=2, p<.001, GFI= .88, CFI=.88, RMSEA= .15). Finally, the third alternative model contained one latent construct for all the items (Δ χ2= 159.96, df= 3, p< .001, GFI= .62, CFI= .45, RMSEA= .30). As such, the fit for these alternative models was significantly worse than the hypothesized measurement model.

To further corroborate that the concepts of board monitoring and TMT-board cognitive conflict are interpreted as separate constructs conceptually, we conducted an additional expert rating approach in which raters had to assign items to constructs (cf. Schriesheim, Cogliser, Scandura, Lankau, & Powers, 1999; Schriesheim, Powers, Scandura, Gardiner, & Lankau, 1993). We asked 47 business students participating in a master course on Research in Accounting and Control to provide content ratings on the different items for board monitoring and TMT-board cognitive conflict. We provided the raters with definitions of board monitoring and TMT-board cognitive conflict. For each item used in

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our analyses, we asked them to what extent that item reflects board monitoring and to what extent it reflects TMT-board cognitive conflict on a five-point scale (1 = None, or hardly any, 5 = Completely, or almost completely). Paired sample t-tests in which we compared ratings for the items for both board monitoring and TMT-board cognitive conflict show that raters differently assign all items to board monitoring and TMT-board cognitive conflict (the lowest t-value of the paired sample t-test is 12.58, p < .001).

RESULTS Descriptive Statistics

Table 2.1 provides the means, standard deviations and correlations. The table shows that larger boards generally exhibit higher levels of monitoring and TMT-board cognitive conflict. Furthermore, the percentage of female board members is positively related to both board monitoring and board advice giving. The correlation between TMT tenure and board tenure is relatively high. However, variance inflation factors (VIF) showed no multicollinearity issues for our variables as they are far below 4 (Lattin, Carroll & Green, 2003). One case in our analyses deviated more than four standardized residuals from its predicted value. In addition, the Mahalanobis Distance – an estimate of the multivariate distance between a particular score and the sample mean – indicated that the response deviated from the normative response pattern. Such an extreme deviation from the normative response pattern may signal low-quality data and can be an indication of insufficient effort from respondents (DeSimone, Harms & DeSimone, 2015). Upon closer inspection, we indeed found that one board member provided lengthy strings of invariant responses as well as inconsistent responses. To prevent this single case from severely influencing the results, we excluded this case from our analyses, resulting in a sample size of 101 organizations.

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TABLE 2.1

Means, Standard Deviation and Correlations

Note. n = 101. *p < .05; **p < .01.

Hypotheses Tests

Tables 2.2 and 2.3 report the results for the regression analyses of board monitoring and board advice giving, respectively. In both tables, Model 1 includes the control variables, while Model 2 shows the main effects. The two-way interactions terms are included in Model 3 and, finally, the three-way interaction is added in Model 4.

In support of hypothesis 1a, we find that there is a negative association between TMT tenure and board monitoring (Table 2.2, Model 2, b = -0.20, p = .01). Also, in support of hypothesis 1b, we find a negative association between TMT tenure and board advice giving (Table 2.3, Model 2, b = -0.25, p < .001). Results in Table 2.2 show that for board monitoring, the interaction effect of TMT tenure and TMT-board cognitive conflict is significant and positive (Model 3, b = 0.20, p = .01), which supports hypothesis 2a. Furthermore, corroborating with hypothesis 2b, results in Table 2.3 show that the interaction effect of TMT tenure and TMT-board cognitive conflict is significant and negative (Model 3, b = -0.18, p = .01).

To exclude the possibility that TMT-board cognitive conflict impacts TMT tenure (i.e., perhaps managers are more likely to leave at high levels of TMT-board cognitive conflict), we collected additional information on the proportion of top managers departing in the year following the year in which board members completed the survey. Using this data, we tested whether TMT-board cognitive conflict increases the proportion of managers departing in this following year. Controlling for TMT tenure – since longer-tenured managers are more likely to depart – we do not find that TMT-board

Variable Mean SD 1 2 3 4 5 6 1. Board size 4.41 1.80 2. Board gender 0.11 0.16 .20* 3. TMT tenure 6.68 4.87 -.10 -.09 4. Board tenure 4.96 2.85 -.04 -.16 .63** 5. TMT-board cognitive conflict 2.90 0.78 .21* -.12 -.17 -.01 6. Board monitoring 5.92 0.70 .33** .24* -.31** -.16 .22*

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cognitive conflict is associated with top managers’ departure (b = 0.02, p= n.s.). Furthermore, Table 2.1 also shows that there is no significant relationship between TMT-board cognitive conflict and TMT tenure (r =-0.17, p= n.s.) nor between cognitive conflict and board tenure (r =-0.01, ns). These results indicate that TMT-board cognitive conflict, the proposed moderator in our conceptual model, is unlikely to be affected by TMT tenure.

To gain further insight into the nature of the interaction effects between TMT tenure and TMT-board cognitive conflict, the interaction effects are plotted at two different levels (i.e. one standard deviation above the mean and one standard deviation below the mean) for both board monitoring and board advice giving (cf. Aiken & West, 1991). Specifically, Figure 2.2a shows how the effect of TMT tenure on board monitoring changes for different values of TMT-board cognitive conflict. Similarly, Figure 2.2b shows how the effect of TMT tenure on board advice giving changes for different values of TMT-board cognitive conflict. The graphs in Figure 2.2a are consistent with hypothesis 2a, since TMT tenure is negatively associated with board monitoring at low levels of TMT-board cognitive conflict, but not at high levels of TMT-board cognitive conflict. Figure 2.2b shows that the negative effect of TMT tenure on board advice giving becomes more prominent at high levels of TMT-board cognitive conflict, which is consistent with hypothesis 2b.

Furthermore, hypothesis 3a suggests a three-way interaction effect of TMT tenure, TMT-board cognitive conflict and board tenure on board monitoring, such that the positive interaction effect between TMT tenure and TMT-board cognitive conflict is more pronounced at high levels of board tenure. As Table 2.2 shows, the positive three-way interaction term provides support for this hypothesis (Model 4, b =0.14, p = .02). As such, the positive moderating effect of TMT-board cognitive conflict is more pronounced at high levels of board tenure. Similarly, hypothesis 3b suggests a three-way interaction effect of TMT tenure, TMT-board cognitive conflict and board tenure on board advice giving, such that the negative interaction effect between TMT tenure and TMT-board cognitive conflict is less pronounced at high levels of board tenure. As Table 2.3 shows, the positive three-way interaction term indeed indicates that the negative interaction effect between TMT tenure and

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TMT-546813-L-sub01-bw-Mostert 546813-L-sub01-bw-Mostert 546813-L-sub01-bw-Mostert 546813-L-sub01-bw-Mostert Processed on: 11-8-2020 Processed on: 11-8-2020 Processed on: 11-8-2020

board cognitive conflict becomes less pronounced at high levels of board tenure (Model 4, b =0.10, p = .04). All in all, the results show that whereas board tenure exacerbates the positive moderating effect of board cognitive conflict for board monitoring, it attenuates the negative moderating of TMT-board cognitive conflict for TMT-board advice giving, which is in line with Hypothesis 3a and 3b, respectively.

TABLE 2.2

Results of the Regression Analysis for Board Monitoring

Model 1 Model 2 Model 3 Model 4 Intercept 5.32 (.18)*** 5.41 (.17)*** 5.51 (.18)*** 5.46 (.18)*** Controls Board size .12 (.04)** .09 (.04)* .09 (.04)* .09 (.04)* Board gender .81 (.42)† .87 (.41)* .83 (.41)* .85 (.40)* Main effects TMT tenure -.20 (.08)** -.14 (.09)† -.15 (.09)* TMT-board cognitive conflict .10 (.07) † .10 (.07) † .02 (.08) Board tenure .04 (.08) .07 (.09) .09 (.09)

Two-way interaction TMT tenure x TMT-board cognitive conflict

.20 (.09)* .06 (.11) TMT-board cognitive conflict

x board tenure

-.16 (.08)* -.15 (.08)* TMT tenure x board tenure -.04 (.06) .03 (.07)

Three-way interaction TMT tenure x

TMT-board cognitive conflict x board tenure

.14 (.07)*

R2 _.14 _.24 _.28 _.32

Δ R Square .14*** .09* .05† .03*

Note. Non-standardized coefficients are reported with standard errors in parentheses.

† < .10. * p < .05, ** p < .01. *** p < .001. t-tests are one-tailed for hypothesized effects, two-tailed for control variables

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TABLE 2.3

Results of the Regression Analysis for Board Advice Giving

Model 1 Model 2 Model 3 Model 4 Intercept 5.63 (.15)*** 5.62 (.15)*** 5.68 (.15)*** 5.65 (.15)*** Controls Board size .04 (.03) .05 (.03) .04 (.03) .04 (.03) Board gender .66 (.36) † .68 (.35) † .67 (.35) † .69 (.34)* Main effects TMT tenure -.25 (.07)*** -.28 (.07)*** -.29 (.07)*** TMT-board cognitive conflict -.10 (.06)* -.11 (.06)* -.16 (.07)** Board tenure .24 (.07)*** .27 (.07)*** .28 (.07)*** Two-way interaction

TMT tenure x TMT-board cognitive conflict

-.18 (.08)** -.28 (.09)** TMT-board cognitive conflict x

board tenure

.05 (.07) .06 (.07) TMT tenure x board tenure -.08 (.05)* -.03 (.06) Three-way interaction

TMT tenure x

TMT-board cognitive conflict x board tenure

.10 (.06)*

R2 _.06 _.20 _.26 _.28

Δ R Square .06* .14** .06† .02†

Note. Non-standardized coefficients are reported with standard errors in parentheses.

† < .10. * p < .05, ** p < .01. *** p < .001. t-tests are one-tailed for hypothesized effects, two-tailed for control variables.

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FIGURE 2.2

Graphical Presentation of the Interaction between TMT Tenure and TMT-Board Cognitive Conflict for Board Monitoring and Board Advice Giving

(2a) Board Monitoring

(2b) Board Advice Giving

5,3 5,4 5,5 5,6 5,7 5,8 5,9 6 6,1 6,2

Low TMT tenure High TMT tenure

B oar d Moni tor in g Low TMT-board cognitive conflict High TMT-board cognitive conflict 5,2 5,3 5,4 5,5 5,6 5,7 5,8 5,9 6 6,1 6,2

Low TMT tenure High TMT tenure

Bo a rd Advice Givin g Low TMT-board cognitive conflict High TMT-board cognitive conflict

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DISCUSSION

The present study was conducted to enhance our understanding of how TMT-board cognitive conflict and board tenure jointly affect board monitoring and advice giving in dealing with high-tenured TMTs. By integrating governance research with research on cognitive conflict, we tested and corroborated the hypothesis that while cognitive conflict between the TMT and the board may help the board to monitor high-tenured TMTs, it may also make it more difficult for the board to provide these TMTs with advice. In accordance with the literature on board capital which suggests that vigilance without experience is unlikely to result in increased monitoring and advice giving (Hillman & Dalziel, 2003; Haynes & Hillman, 2010), our results furthermore demonstrate that board tenure acts as a crucial contingency for this moderating effect of cognitive conflict on board functioning. Specifically, we showed that when interacting with high-tenured TMTs, limiting board tenure – which is generally intended to ensure that boards remain critical towards the TMT – might actually thwart the board’s involvement in its monitoring and advice giving tasks. Our results therefore indicate that the relationship between TMT tenure, TMT-board cognitive conflict and board tenure on board functioning is more complex than generally anticipated.

Specifically, this study makes three main contributions to the corporate governance literature. First, our results call for a stronger awareness that TMT tenure has an important impact on board functioning. Consequently, this implies that boards with the exact same composition and internal dynamics may nevertheless function very differently depending on the top managers they are interacting with. As such, we maintain that when studying how boards carry out their monitoring and advisory tasks towards the TMT, corporate governance scholars may not solely focus on how board characteristics, such as board independence, influence board functioning. Instead, we argue that to further our understanding of board-governance effectiveness, scholars need to more fully consider how board characteristics, TMT characteristics as well as the interactions taking place between TMTs and boards jointly shape board functioning.

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Second, our study contributes to the behavioral stream of research on boards by acknowledging that the interactions between the TMT and the board may very well differently affect board monitoring and advice giving. In this respect, it is interesting to note that although both board monitoring and board advice giving are fundamental parts of board functioning (O’Neal & Thomas, 1996; Hillman & Dalziel, 2003), to date, the realization that behavioral dynamics between TMTs and boards may oppositely shape board monitoring and board advice giving has received scant attention (Tuggle, Schnatterly & Johnson, 2010; Baldenius, Melumad & Meng, 2014; Carter & Lorsch, 2004). Yet, this knowledge is indispensable. In this respect, Faleye and colleagues (2011) already suggested that an improvement in board monitoring quality might come at the expense of a diminished advisory task. Similarly, Westphal (1999) notes that managers are less likely to share their strategic concerns with, or to seek strategic advice from, the board when their autonomy is weakened by board oversight and control (see also Ponomareva, Shen & Umans, 2019). By studying the determinants of board monitoring and board advice giving, we empirically demonstrate that while cognitive conflict may aid board monitoring of high-tenured TMTs, it, at the same time, also further diminishes board advice giving. As such, we believe this study provides an important behaviorally oriented view of what drives board monitoring and advice giving.

Finally, our findings challenge the literature that implicitly equates high board tenure with a non-critical stance towards TMTs (see also Veltrop et al., 2018; Canavan, Jones & Potter, 2004; Kang & Kroll, 2014). Our theoretical reasoning and empirical findings suggest that limiting board tenure may actually result in boards being less able to perform their monitoring and advisory tasks when dealing with high-tenured TMTs. As such, we stress that while both high-tenured and low-tenured boards can be critical towards high-tenured TMTs, without an intimate understanding of the organization, a critical board is unlikely to be as effective in carrying out its duties.

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Practical Implications

This study also has important implications for practitioners and policy makers. First of all, the financial crisis of 2008 and numerous corporate scandals have reiterated that top managers do not always act in the best interest of the firm (Roberts et al., 2005; Minichilli et al., 2012). Therefore, corporate governance reformers in several European and non-European countries have advocated to limit board tenure, assuming that this increases the board’s critical stance towards the TMT (e.g., Musteen, Datta & Kemmerer, 2010). However, our findings raise questions with regard to the arguments brought to the fore for these governance reforms. If anything, our findings highlight that practitioners should be well aware that high levels of board tenure should not be equated with a non-critical attitude towards the TMT and that limiting board tenure may actually have unintended consequences. As such, we maintain that a “one-size-fits-all” approach that suggests to limit board tenure may not be the most appropriate option. Specifically, it is important that practitioners not only aim for boards to be critical – particularly in dealing with high-tenured TMTs – but also ought to consider the board’s capacity and understanding of organizational affairs as well. Then, in contributing to the principal discussion of whether boards should consist of detached outsiders or knowledgeable insiders, our results suggest that this should not be viewed as an either/or discussion; boards that are critical towards top managers but, at the same time, possess an in-depth understanding of the organization are most likely to be effective.

On a related note, governance codes mainly draw from an agency-theoretic rationale and are therefore strongly attuned to strengthening board monitoring (Baldenius et al, 2014; Cuomo, Mallin & Zattoni, 2016). It is not always fully recognized, however, that in practice, boards both monitor and give advice to TMTs and that overemphasizing the determinants of board monitoring may actually have a negative impact on board advice giving. Therefore, governance reforms aimed at enhancing board monitoring could actually detract boards from their advisory task. As such, best practices attuned to increasing the board’s monitoring task should not be viewed in isolation from their effects on the board’s advice giving task.

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Finally, we stress that TMT tenure does not necessarily lead to managerial entrenchment if a board manages to retain good managers. TMT tenure is not always a sign of entrenchment; this is likely to be contingent on the willingness and ability of the board to keep TMT in check at higher levels of tenure. In fact, in our reasoning, we argue that TMT-board cognitive conflict and board tenure play such a crucial joint moderating role precisely because boards that are critical towards the TMT but, at the same time, have in-depth understanding of the organization are better equipped to negate managerial entrenchment.

Limitations and Directions for Future Research

The present study has several limitations that also provide interesting avenues for future research. First, our study was conducted at financial institutions with a two-tier governance system. Our results may therefore not be generalizable to non-financial institutions. Nevertheless, we believe that although the financial institutions provide a particular type of sampled TMTs and boards, the interplay between TMT tenure, TMT-board cognitive conflict and board tenure on board functioning can occur within a multitude of TMTs and boards. Our results may also not be generalizable to financial institutions with a one-tier governance system. However, in this respect, it is important to note that Hooghiemstra and van Manen (2004) argue that one-tier and two-tier systems have converged in the past decades and that the work of non-executive directors within one-tier boards is very similar to the work of supervisory board members in a two-tier system (see also Veltrop et al., 2018). As such, although we encourage future research to examine the impact of TMT tenure within non-financial institutions or within one-tier boards, we expect that our results carry beyond our particular research setting.

Second, while we propose a nuanced interpretation of how TMT tenure, board tenure and TMT-board interactions are jointly associated with board monitoring and board advice giving, it is important to note that our study was cross-sectional and that, as such, we cannot unequivocally demonstrate the causality of the relationships reported. Future research could potentially gather

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survey data at multiple points in time and incorporate longitudinal designs to provide insight on how changes in TMT and board structural characteristics influence board monitoring and advice giving over time. Similarly, while we did not measure nor conceptualize the development of cognitive conflict over time, we believe that interesting work can be done on how cognitive conflict between TMTs and boards evolves over time. Indeed, whereas Jehn and Mannix (2001) originally studied the dynamic nature of conflict, in a recent meta-analysis on conflict, DeWit et al. (2013) actually noted that not much is known about how conflict evolves. Studies that explore the determinants of TMT-board cognitive conflict or its development will therefore potentially provide important insights, not only to research on board-governance effectiveness, but also research on how conflict develops over time.

Third, we limited our discussion to the determinants of board monitoring and board advice giving, rather than discussing important consequences of reduced board functioning. However, if, for instance, TMT tenure limits board monitoring, this could have especially bad implications for organizations. As such, TMT tenure may not only influence board functioning – the focus of our study – but can also have further implications, such as decreasing the overall performance of an organization (see also Shen, 2003). An interesting avenue for future research therefore would be to broaden our conceptual model to include important organizational consequences of reduced board functioning.

Finally, we hope that although gaining access to boards to garner insight on the inner workings of boards is difficult (Leblanc & Schwartz, 2007; Hillman, Nicholson & Shropshire, 2008), future research will continue to see the importance of incorporating primary information on management-board interactions and the resulting behavioral dynamics. We believe it would have been difficult to provide a fine-grained analysis and to disentangle the impact of TMT tenure on board monitoring and board advice giving if we would not have had access to primary information.

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All Male at the Top? When TMT Performance Evaluations Spiral into TMT-Board Emotional Conflict6

ABSTRACT

A key task of boards is evaluating the performance of the top management team (TMT). Using a survey of 274 top managers and 554 independent directors at 118 companies, we examine the affective consequences—specifically, TMT-board emotional conflict—of the board’s evaluation of TMT performance. We argue that when the board is more negative about TMT performance than the TMT itself (i.e., performance evaluation incongruence), emotional conflict ensues. Drawing from expectancy violation theory, which holds that same-gender expectancy violations are likely to elicit stronger emotional responses, we further extend this baseline hypothesis by considering the level of gender-similarity between the TMT and the board. Specifically, we anticipate that performance evaluation incongruence is more likely to result in emotional reactions between gender-similar TMTs and boards. We find general support for our expectations. Further underlining the importance of emotional conflict in the boardroom, additional analyses demonstrate that emotional conflict subsequently increases the likelihood of independent directors leaving the board early.

Keywords: Boards of Directors, TMT Performance Evaluation, Expectancy Violation, Male-Similarity