The behavioral perspective on corporate governance largely considers boards of directors as cooperative groups. By contrast, we put spotlight on the social comparison processes among outside directors on a board, and find that they have important implications for board evolution (both turnover and recruitment) and ultimately firm performance. We focus on the assignment of chair positions, namely the board chair and chairs of three key board committees, at initial public offering (IPO) when the board committees are installed for the first time. Our study shows that if directors are undervalued vis-à-vis fellow outside directors in the formal leadership structure of the board, they are more likely to exit; further, the new directors added to the board have overall lower qualifications. These evolutionary changes on the board, then, have significant performance consequences for the firm. Overall, a key insight is that some of the most promising entrepreneurial firms (i.e. those that undergo IPO) can decline due to mis-structuring of the board leadership structure during this important transition.
GARG, S. et LI, Q. (2018). Director Undervaluation, Board Evolution, and Firm Performance. Academy of Management Proceedings, 2018(1), pp. 12709.