Take a Stand or Keep Your Seat: Board Turnover after Social Activist Challenges

Abstract

While prior work shows that a firm’s market performance affects its directors’ loyalty, little is known about how a firm’s social values and perceived social responsibility affect directors’ willingness to serve. In this project, we shed light on this question by exploring how social movement boycotts that challenge a firm’s social responsibility affect the loyalty of board members. We find that boycotts do provoke significant increase in turnover at targeted firms. Further, we show that directors are especially likely to leave when a boycott signals that the firm’s social values conflict with their personal values. Specifically, we find that an ideological match between a board member and the activist challengers predicts exit: liberals are more likely to leave after liberal challenges and conservatives are more likely to leave after conservative challenges. Moreover, we show that turnover is consistent with the rigidity of the right hypothesis in political psychology: conservatives, as compared to liberals, are more prone to entrenchment when their firms faces challenges from the opposition. Our study offers strong evidence that corporate social performance matters to corporate directors and provides insights into the manner in which contentious crises affect the motivation of corporate insiders.