Sparing boards will pay even less and openhanded boards will pay even more

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

In this study, I examine how a fundamental group decision-making bias referred to as group polarization may influence boards' key strategic decisions. The group polarization theory explains how board discussions can induce directors to make a collective decision that amplifies their average pre-meeting position. For example, the group polarization theory suggests that when directors on average used to pay high levels of CEO compensation, they tend to pay the focal CEO even more following board discussions; but when directors on average used to pay low levels of CEO compensation, board discussions will cause them to pay the focal CEO even less. Results based on decisions made by Fortune 500 directors provided strong support to the theory. This study introduces a fundamental group decision making bias into the study of boards, and explains how group discussions may induce directors to approve a focal decision that is more extreme than the average decision experienced by them on other boards, thus suggesting how group processes may distort the network diffusion effect. Implications for board decisions about acquisition premium and CEO compensation are also discussed.

Original languageEnglish (US)
Title of host publicationAcademy of Management 2010 Annual Meeting - Dare to Care: Passion and Compassion in Management Practice and Research, AOM 2010
StatePublished - 2010
Event70th Annual Meeting of the Academy of Management - Dare to Care: Passion and Compassion in Management Practice and Research, AOM 2010 - Montreal, QC, Canada
Duration: Aug 6 2010Aug 10 2010

Other

Other70th Annual Meeting of the Academy of Management - Dare to Care: Passion and Compassion in Management Practice and Research, AOM 2010
CountryCanada
CityMontreal, QC
Period8/6/108/10/10

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Keywords

  • Corporate governance
  • Network
  • Top management

ASJC Scopus subject areas

  • Management of Technology and Innovation
  • Industrial relations

Cite this

Zhu, H. (2010). Sparing boards will pay even less and openhanded boards will pay even more. In Academy of Management 2010 Annual Meeting - Dare to Care: Passion and Compassion in Management Practice and Research, AOM 2010