Outside Director to Executive: A New View of the Resource-Provision Role of Directors

Abstract

Our study examines how and why outside directors of firms sometimes accept senior executive roles in those firms, thus converting from outside directors to inside directors. We approach this research question from two levels of analysis: the firm level and the director level. At the firm level, we develop theory to predict that boards utilize outside director appointments when there is a dearth of inside candidates and when firm performance is poor. At the director level, we predict that ongoing executive service in another firm is negatively associated with the conversion, while former executive experience is positively associated with the conversion. Similarly, not-for-profit executive experience is negatively associated with the conversion, while private firm executive experience is positively associated with the conversion. We describe the conversion from outside director to executive as a new way of fulfilling the board’s resource provision role. In addition, we describe how boards manage information asymmetry during selection processes by integrating resource dependency theory and agency theory. Using all outside director appointments in BoardEx, we contribute to strategic leadership research by exploring the role conversion from outside director to executive.