Liabilities of Foreignness in CEO Dismissals

Abstract

While foreign-born individuals are being appointed to lead US corporations in record numbers, little is known about whether foreign CEOs are held to the same performance standards as local CEOs once in their role. To offer insights to this question, we analyze the incremental effect of CEO foreignness and firm performance on CEO dismissal. We draw on social identity and attribution theories to propose that, as firm performance declines, CEO foreignness will become more salient in the eyes of the board and foreign CEOs will be more likely to attract blame, increasing their likelihood of dismissal relative to local CEOs. Using a longitudinal sample of publicly traded US firms (n = 11,323 firm-year observations) and controlling for many factors including endogeneity, we find that the board of directors is more likely to dismiss a foreign CEO than a local CEO. Our findings suggest that although there has been a notable increase of foreigners at the helm of large firms, which would indicate that nationality matters less in the C-suite, boards of directors’ evaluations of these ‘elite migrants’ may still be subject to bias. We advance research on how liabilities of foreignness affect individual outcomes among corporate leadership in organizational settings and highlight the need for firms to take ameliorative steps to fully harness the benefits of international diversity in their top ranks.