International Top Managers on Corporate Boards: Dissimilarity and Tenure.
| Verfasser | Schmid, Stefan |
| Posten | RESEARCH ARTICLE |
1 Introduction
Top management research has expanded considerably over the last decades (e.g., Cannella et al. 2008; Carpenter et al. 2001; Koch et al. 2017; Lovelace et al. 2018; Menz 2012). However, with some exceptions, one characteristic of top managers, and in particular of board members, has received relatively scant attention: tenure (Hambrick and Fukutomi 1991). While prior research has identified some factors that influence board member tenure, such as firm performance or firm size (Ballinger and Marcel 2010; Berns and Klarner 2017; Finkelstein et al. 2009; Fredrickson et al. 1988; Kesner and Sebora 1994; Mietzner et al. 2017), many antecedents of tenure are still poorly explored and understood--in particular antecedents at the level of the individual, such as demographic characteristics of top managers. (1)
Prior literature has stressed that Multinational Corporations (MNCs) benefit from international top managers (Greve et al. 2015; Hamori and Koyuncu 2011; Ruigrok et al. 2013). It has been repeatedly claimed that top managers who are international themselves, or who have international work experience, can cope better with the complexities that arise from the challenges of doing business across borders (Athanassiou and Roth 2006; Carpenter et al. 2004; Schmid and Dauth 2014). It has also been stated that both their mindset and their experience make international managers better prepared in this regard (Jiang et al. 2018; Kedia and Mukherji 1999; Story et al. 2014). International Business (IB) and International Management (IM) literature, along with upper echelons and corporate governance literature, has already investigated positive outcomes of board internationalization, such as higher innovation, better strategic choices, and stronger MNC performance. In this context, literature often called for further increasing board internationalization, so as to reinforce the positive effects of diversity at the firm-level (e.g., Cannella et al. 2008; Chanland and Murphy 2018; Nielsen and Nielsen 2013; Thams et al. 2018).
However, is having a foreign passport or international work experience also beneficial for an individual's tenure on the board? While there is empirical evidence that international top managers provide firms with important assets (Khanna and Palepu 2004; Nielsen 2009), this may come at the expense of detrimental outcomes at the individual level. Through the present study, we ask whether an individual's foreign passport and international work experience have an influence on tenure on the board. The consulting firm 'Strategy&' recently reported that, in general, tenure of MNCs' top managers has decreased over the last few years (Strategy& 2016). The question arises as to whether this is particularly true for top executives with a foreign nationality and whether a top manager's international work experience also impacts tenure (Die Welt 2017; Financial Times 2012; The New York Times 2014).
Studying the relationship between the international background of the individual and his or her tenure is relevant from both a firm perspective and an individual perspective: at the MNC level, recruiting and integrating board members is not only a very complex process, but is also associated with significant cost (Nadler 2016). While we do not claim that longer tenure is always better than short tenure, there is no doubt that, with some exceptions, short tenures of top managers and high turnover rates for top managers are usually not intended by decision-making bodies. This applies in particular to executive directors or inside directors in one-tier corporate governance systems and to management board members in two-tier corporate governance systems. In general, high turnover is associated with negative effects on organizational functioning (Reiche 2009). For instance, executive turnover often not only leads to disturbance and instability in upper echelons (Ballinger and Marcel 2010), but also results in organizational discontinuity (Gjerlov-Juel 2019) or negative communication by media (Bilgili 2017). At the level of the individual, having short tenure may be desired by those individuals who opt for a boundaryless career and who actively look for 'self-directed' careers without spending too much time within one organization (Arthur and Rousseau 1996; Wang and Wanberg 2017). However, short tenure may often also lead to negative consequences for top managers. Examples include disruption to career development (Ward et al. 1995) or lower compensation as a result of having to accept inferior positions (Fee and Hadlock 2004).
To investigate the association between a top manager's internationality and board tenure, we rely on interpersonal attraction research and the similarity-attraction paradigm. We use a sample of management board members from German DAX-30 firms. The results of our regression analysis support our theoretical reasoning, thereby demonstrating a negative relationship between top manager internationality and tenure on a board. Based on the social capital perspective, we also reveal that in-house work experience prior to being appointed to the management board is positively related to tenure. However, with our empirical data, we identify no moderation effect of in-house work experience on the negative relationship between top managers' internationality and tenure.
Appointing dissimilar board members may follow the idea of bringing diversity into the board room, with dissimilar board members deliberately having the role to question established views and routines. However, as management board members in the German corporate governance setting have an executive management role (similar to executive directors or inside directors in one-tier corporate governance settings), they are usually expected to have considerable tenure. This allows them to (be able to) shape the firm's future development (Du Plessis et al. 2015; Hopt and Leyens 2004; Kaczmarek et al. 2012). Since the role of supervisory board members (similar to non-executive or outside directors in one-tier corporate governance settings), is rather the monitoring one (Clarke 2017; Mallin 2018), it is desirable that some supervisory board members deliberately have short tenure, bringing in new and fresh perspectives as well as challenging the opinion of management board members. This explains why our study focuses on the tenure of management board members and not on the tenure of supervisory board members within firms' top management.
What contributions does our study make to literature and managerial practice? First, by building upon interpersonal attraction research and the similarity-attraction paradigm, we provide theoretical reasoning for a negative relationship between a top manager's internationality and his or her board tenure. We argue that top managers on the board who are different from their peers may encounter problems and situations which shorten their tenure. While existing studies in the IB and IM field have already shown that 'being different' matters, e.g., for entry mode choices (Nielsen and Nielsen 2011), we apply the dissimilarity discussion to the level of MNC top managers and the consequences for their tenure on the board. Second, we empirically demonstrate that being a foreigner or showing deviation from the typical international work experience on the respective board shorten tenure on the board. Hence, we add to the scant literature of board tenure's antecedents at the individual level. To date, albeit with rare exceptions (e.g., Daily et al. 2000; Godthelp and Glunk 2003; Wagner et al. 1984), research has mostly provided evidence of antecedents at the organizational level, such as organizational performance. However, as some scholars have rightly pointed out, board tenure is also determined by factors at the individual level (Cannella and Monroe 1997). Third, with our paper, we consider the effect that in-house work experience (gained prior to being appointed to the board) has on tenure. We provide empirical evidence that longer in-house work experience is beneficial for the individual top manager's tenure. However, we cannot confirm the alleviating moderation effect on the negative relationship between internationality and tenure. Ultimately, through the results of this study, we call for a more nuanced understanding of the consequences of internationality at the individual level. We also complement prior research, which has often identified positive outcomes of internationality for both the individual and the firm.
2 Theory and Hypotheses
2.1 Theory
To address our main research question, we build on interpersonal attraction research and the similarity-attraction paradigm. Top managers who sit on a management board are part of a group, namely, the management board, and as with any other group, individuals inside of the board relate to each other (Fitness et al. 2007; Thomsen and Conyon 2012). Within a management board, individuals can feel more or less attracted towards others. Attraction has been a subject of investigation in interpersonal attraction research for many decades (Blau 1960; Lott and Lott 1965). In this vein of research, 'attractiveness' refers to the possession of desirable qualities by an individual that evoke positive affective evaluations in others (Byrne and Griffitt 1973; Kloh-nen and Luo 2003). Similarity indicates a conceptual proposition in which increased resemblance between individuals results in increased attraction, which is also due to homophily (Holgersson 2013; Lazarsfeld and Merton 1954; McPherson et al. 2001). Individuals who display specific characteristics or behaviors (e.g., values, beliefs, skills and practices) deemed similar or valuable by an observer usually evoke positive perceptions. Hence, these individuals become attractive in the observer's eyes (Berscheid and Walster 1969; Montoya and Horton 2012). According to interpersonal attraction theory, interaction with...
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