How Do CEOs in Stigmatized Industries Cope with the Stigma Transfer?

Abstract

This study examines how CEOs react to the threat of stigma transfer from their firms. Building on stigma research and upper echelons literature, we propose that the threat of stigma transfer increases the likelihood that CEOs join the board of other firms as a hedging strategy. We explore the boundary conditions of CEOs’ board-joining and examine the factors that make the CEOs vulnerable to the harm of stigma transfer and factors that influence the severity of this harm. We test our hypotheses using a dataset of 416 CEOs in 208 firms in the global arms industry, between 1998 and 2016. Our findings on how firms’ upper echelons cope with the stigma attached to the core of business advance current knowledge on organizational stigma, which has mainly focused on firms’ lower echelons’ responses to core stigma or on the consequences of failure stigma for firms’ upper echelons.