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    Pluralistic Ignorance In Corporate Boards And Firms' Strategic Persistence In Response To Low Firm Performance

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    PluralisticIgnorance.pdf (1.320Mb)
    Date
    2005-06
    Author
    Westphal, J. D.
    Bednar, M. K.
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    Abstract
    This study examines how a social psychological bias referred to as pluralistic ignorance may occur in corporate boards and how this bias could contribute to strategic persistence in response to relatively low firm performance. Our theory suggests that under conditions of low performance, there may be a systematic tendency for outside directors to underestimate the extent to which fellow directors share their concerns about the viability of the firm's corporate strategy. This reduces the propensity for individual directors to express their concerns about the current corporate strategy in board meetings, decreasing the likelihood that boards will initiate strategic change in response to low firm performance. We also posit factors that may moderate the extent to which pluralistic ignorance occurs on boards. We suggest that demographic homogeneity among outside directors (with respect to gender, functional background, education, and industry of employment) and the density of friendship ties among them will significantly moderate the occurrence of pluralistic ignorance on boards. We test our hypotheses with original survey data from a large sample of outside directors at medium-sized U.S. companies and find support for our theory. We discuss contributions of our theory and findings to,the literatures on corporate governance, strategic persistence and change, and group decision-making processes in organizations.
    Department
    Management
    Subject
    management team demography
    decision-making
    relational demography
    social integration
    decline processes
    ceo compensation
    top managers
    diversification
    governance
    power
    business
    management
    URI
    http://hdl.handle.net/2152/29361
    Citation
    James D. Westphal, Michael K. Bednar. Administrative Science Quarterly Vol. 50, No. 2, (Jun., 2006), pp. 262-298
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