Published Online:https://doi.org/10.5465/amj.2012.0253

This study builds on structural elaboration theory by developing a model to explain the adoption of board structures that appear to conform to the prevailing institutional logic, but which in fact contradict it. We test our theory with the case of CEO-only board structures, a formal increase in board independence that prior research has shown to lead to greater CEO entrenchment rather than increased shareholder value. Using an event history analysis of the Fortune 250 over a 27-year period, we examine three mechanisms that drive its adoption: executive interests, executive power, and elaboration opportunities. We show that the CEO-only structure is more likely to occur in firms in which a higher proportion of insiders predate the CEO, and in which the CEO has greater formal power and agenda control. We also find that powerful CEOs are more likely to realize the structural change following institutional opportunities, such as the passage of Sarbanes-Oxley (SOX), and organizational contingencies, such as positive changes in firm performance. By exploring the mechanisms leading to the proliferation of the CEO-only structure, our study contributes to sociopolitical perspectives on corporate governance, as well as to theories of institutional logics and structural elaboration.

REFERENCES

  • Adams R. B. , Almeida H. , Ferreira D. 2005. Powerful CEOs and their impact on corporate performance. Review of Financial Studies, 18: 1403–1432. Google Scholar
  • Allison P. D. 1984. Event history analysis. Newbury Park, CA: Sage. Google Scholar
  • American Law Institute. 1982. Principles of corporate governance and structure: Restatement and recommendations. Philadelphia: American Law Institute. Google Scholar
  • Ansari S. M. , Fiss P. C. , Zajac E. J. 2010. Made to fit: How practices vary as they diffuse. Academy of Management Review, 35: 67–92.LinkGoogle Scholar
  • Arjas E. , Kangas P. 1992. A discrete-time method for the analysis of event histories. In Treussell J.Hankinson R.Tilton J. (Eds.), Demographic applications of event history analysis: 253–266. Oxford: Clarendon Press. Google Scholar
  • Bhagat S. , Black B. 2001. The non-correlation between board independence and long-term firm performance. Journal of Corporation Law, 27: 231–273. Google Scholar
  • Bhaskar R 1978. A Realist Theory of Science. Hassocks, UK: Harvester Press. Google Scholar
  • Bigley G. A. , Wiersema M. F. 2002. New CEOs and corporate strategic refocusing: How experience as heir apparent influences the use of power. Administrative Science Quarterly, 47: 707–727. Google Scholar
  • Boeker W. 1992. Power and managerial dismissal: Scapegoating at the top. Administrative Science Quarterly, 37: 400–421. Google Scholar
  • Boyd B. K. 1995. CEO duality and firm performance: A contingency model. Strategic Management Journal, 16: 301–312. Google Scholar
  • Brickley J. A. , Coles J. L. , Jarrell G. 1997. Leadership structure: Separating the CEO and chairman of the board. Journal of Corporate Finance, 3: 189–220. Google Scholar
  • Burt R. S. 1992. Structural holes: The social structure of competition. Cambridge, MA: Harvard University Press. Google Scholar
  • Burt R. S. 1997. The contingent value of social capital. Administrative Science Quarterly, 339–365. Google Scholar
  • Cannella A. A. , Shen W. 2001. So close and yet so far: Promotion versus exit for CEO heirs apparent. Academy of Management Journal, 44: 252–270.LinkGoogle Scholar
  • Chhaochharia V. , Grinstein Y. 2007. Corporate governance and firm value: The impact of the 2002 governance rules. Journal of Finance, 62: 1789–1825. Google Scholar
  • Coates J. C. 2007. The goals and promise of the Sarbanes-Oxley Act. Journal of Economic Perspectives, 21: 91–116. Google Scholar
  • Combs J. G. , Ketchen D. J. , Perryman A. A. , Donahue M. S. 2007. The moderating effect of CEO power on the board composition–firm performance relationship. Journal of Management Studies, 44: 1299–1323. Google Scholar
  • Daily C. M. , Dalton D. R. , Cannella A. A. 2003. Corporate governance: Decades of dialogue and data. Academy of Management Review, 28: 371–382.LinkGoogle Scholar
  • Dalton D. R. , Daily C. M. , Ellstrand A. E. , Johnson J. L. 1998. Meta-analytic reviews of board composition, leadership structure, and financial performance. Strategic Management Journal, 19: 269–290. Google Scholar
  • Dalton D. R. , Kesner I. F. 1987. Composition and CEO duality in boards of directors: An international perspective. Journal of International Business Studies, 18: 33–42. Google Scholar
  • Davis G. F. 1991. Agents without principles? The spread of the poison pill through the intercorporate network. Administrative Science Quarterly, 36: 583–613. Google Scholar
  • Davis G. F. 2009. Managed by the markets: How finance has reshaped America. New York: Oxford University Press. Google Scholar
  • Davis G. F. , Diekmann K. A. , Tinsley C. H. 1994. The decline and fall of the conglomerate firm in the 1980s: The deinstitutionalization of an organizational form. American Sociological Review, 59: 547–570. Google Scholar
  • Davis G. F. , Stout S. K. 1992. Organization theory and the market for corporate control: A dynamic analysis of the characteristics of large takeover targets, 1980–1990. Administrative Science Quarterly, 37: 605–633. Google Scholar
  • Davis G. F. , Thompson T. A. 1994. A social movement perspective on corporate control. Administrative Science Quarterly, 39: 141–173. Google Scholar
  • Demsetz H. 1983. The structure of ownership and the theory of the firm. Journal of Economics, 26: 375–390. Google Scholar
  • DiMaggio P. J. , Powell W. W. 1983. The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48: 147–160. Google Scholar
  • Edelman L. B. 1992. Legal ambiguity and symbolic structures: Organizational mediation of civil rights law. American Journal of Sociology, 97: 1531–1576. Google Scholar
  • Fama E. F. , Jensen M. C. 1983. Separation of ownership and control. Journal of Law and Economics, 26: 301–326. Google Scholar
  • Finkelstein S. 1992. Power in top management teams: Dimensions, measurement, and validation. Academy of Management Journal, 35: 505–538.LinkGoogle Scholar
  • Finkelstein S. , D'Aveni R. A. 1994. CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37: 1079–1108.LinkGoogle Scholar
  • Finkelstein S. , Hambrick D. C. , Cannella A. A. 2009. Strategic leadership: Theory and research on executives, top management teams, and boards. New York: Oxford University Press. Google Scholar
  • Fiss P. C. , Zajac E. J. 2004. The diffusion of ideas over contested terrain: The (non)adoption of a shareholder value orientation among German firms. Administrative Science Quarterly, 49: 501–534. Google Scholar
  • Fiss P. C. , Zajac E. J. 2006. The symbolic management of strategic change: Sensegiving via framing and decoupling. Academy of Management Journal, 49: 1173–1193.LinkGoogle Scholar
  • Fligstein N. 2001. The architecture of markets: An economic sociology of twenty-first-century capitalist societies. Princeton, NJ: Princeton University Press. Google Scholar
  • Fligstein N. , Markowitz L. 1993. Financial reorganization of American corporations in the 1980s. In Wilson W. J. (Ed.), Sociology and the public agenda: 185–206. Newbury Park, CA: Sage. Google Scholar
  • Fligstein N. , Shin T. 2007. Shareholder value and the transformation of the U.S. economy, 1984–2000. Sociological Forum, 22: 399–420. Google Scholar
  • Forbes D. P. , Milliken F. J. 1999. Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of Management Review, 24: 489–505.LinkGoogle Scholar
  • Fox-Wolfgramm S. J. , Boal K. B. , Hunt J. G. 1998. Organizational adaptation to institutional change: A comparative study of first-order change in prospector and defender banks. Administrative Science Quarterly, 43: 87–126. Google Scholar
  • Friedland R. , Alford R. R. 1991. Bringing society back in: Symbols, practices and institutional contradictions. In Powell W. W.DiMaggio P. J. (Eds.) The new institutionalism in organizational analysis: 232–266. Chicago: University of Chicago Press. Google Scholar
  • Gerstner L. V. 2002. Who says elephants can't dance? Inside IBM's historic turnaround. New York: HarperBusiness. Google Scholar
  • Godfrey P. C. , Hill C. W. L. 1995. The problem of unobservables in strategic management research. Strategic Management Journal, 16: 519–533. Google Scholar
  • Goldstein A. 2012. Revenge of the managers: Labor cost-cutting and the paradoxical resurgence of managerialism in the shareholder value era, 1984–2001. American Sociological Review, 77: 268–294. Google Scholar
  • Gordon J. N. 2007. The rise of the independent directors in the United States, 1950–2005: Of shareholder value and stock market prices. Stanford Law Review, 59: 1465–1568. Google Scholar
  • Green S. E. , Babb M. , Alpaslan C. M. 2008. Institutional field dynamics and the competition between institutional logics: The role of rhetoric in the evolving control of the modern corporation. Management Communication Quarterly, 22: 40–73. Google Scholar
  • Greenwood R. , Suddaby R. 2006. Institutional entrepreneurship in mature fields: The big five accounting firms. Academy of Management Journal, 49: 27–48.LinkGoogle Scholar
  • Haleblian J. , Finikelstein S. 1993. Top management team size, CEO dominance, and firm performance: The moderating roles of environmental turbulence and discretion. Academy of Management Journal, 36: 844–863.LinkGoogle Scholar
  • Hallett T. 2010. The myth incarnate: Recoupling processes, turmoil, and inhabited institutions in an urban elementary school. American Sociological Review, 75: 52–74. Google Scholar
  • Hallett T. , Ventresca M. J. 2006. Inhabited institutions: Social interactions and organizational forms in Gouldner's “Patterns of Institutional Bureaucracy.” Theory and Society, 35: 213–236. Google Scholar
  • Hambrick D. C. , Finkelstein S. 1987. Managerial discretion: A bridge between polar views of organizational outcomes. Research in Organizational Behavior, 9: 369–406. Google Scholar
  • Harris J. , Johnson S. , Souder D. 2013. Model theoretic knowledge accumulation: The case of agency theory and incentive alignment. Academy of Management Review, 38: 442–454.AbstractGoogle Scholar
  • Hayward M. L. , Rindova V. P. , Pollock T. G. 2004. Believing one's own press: The causes and consequences of CEO celebrity. Strategic Management Journal, 25: 637–653. Google Scholar
  • Hermalin B. E. , Weisbach M. S. 1998. Endogenously chosen boards of directors and their monitoring of the CEO. American Economic Review, 88: 96–118. Google Scholar
  • Hermalin B. E. , Weisbach M. S. 2003. Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9: 7–26. Google Scholar
  • Hickson D. J. , Hinings C. R. , Lee C. A. , Schneck R. E. , Pennings J. M. 1971. A strategic contingencies' theory of intraorganizational power. Administrative Science Quarterly, 16: 216–229. Google Scholar
  • Hoechle D. , Schmid M. , Walter I. , Yermack D. 2012. How much of the diversification discount can be explained by poor corporate governance? Journal of Financial Economics, 103: 41–60. Google Scholar
  • Jensen M. C. 1993. The modern industrial revolution, exit and the failure of internal control systems. The Journal of Finance, 48: 831–880. Google Scholar
  • Jensen M. C. , Meckling W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3: 305–360. Google Scholar
  • Johnson R. A. , Greening D. W. 1999. The effects of corporate governance and institutional ownership types of corporate social performance. Academy of Management Journal, 42: 564–576.AbstractGoogle Scholar
  • Johnson S. G. , Schnatterly K. , Hill A. D. 2013. Board composition beyond independence: Social capital, human capital, and demographics. Journal of Management, 39: 232–262. Google Scholar
  • Kalev A. , Dobbin F. 2006. Enforcement of civil rights law in private workplaces: The effects of compliance reviews and lawsuits over time. Law and Social Inquiry, 31: 855–903. Google Scholar
  • Kellogg K. C. 2009. Operating room: Relational spaces and microinstitutional change in surgery. American Journal of Sociology, 115: 657–711. Google Scholar
  • Kim Y. , Cannella A. A. 2008. Toward a social capital theory of director selection. Corporate Governance: An International Review, 16: 282–293. Google Scholar
  • Kingdon J. W. 1984. Agendas, alternatives and public policies. Boston, MA: Little, Brown. Google Scholar
  • Kmec J. A. , Skaggs S. L. 2009. Organizational variation in formal equal employment opportunity structures. Sociological Forum, 24: 47–75. Google Scholar
  • Levy D. , Scully M. 2007. The institutional entrepreneur as modern prince: The strategic face of power in contested fields. Organization Studies, 28: 971–991. Google Scholar
  • Liu Y. , Jiraporn P. 2010. The effect of CEO power on bond ratings and yields. Journal of Empirical Finance, 17: 744–762. Google Scholar
  • Lok J. 2010. Institutional logics as identity projects. Academy of Management Journal, 53: 1305–1335.LinkGoogle Scholar
  • Lounsbury M. 2001. Institutional sources of practice variation: Staffing college and university recycling programs. Administrative Science Quarterly, 46: 29–56. Google Scholar
  • Lounsbury M. 2007. A tale of two cities: Competing logics and practice variation in the professionalizing of mutual funds. Academy of Management Journal, 50: 289–307.LinkGoogle Scholar
  • Lounsbury M. 2008. Institutional rationality and practice variation: New directions in the institutional analysis of practice. Accounting, Organizations and Society, 33: 349–361. Google Scholar
  • Lynall M. D. , Golden B. R. , Hillman A. J. 2003. Board composition from adolescence to maturity: A multitheoretic view. Academy of Management Review, 28: 416–431.LinkGoogle Scholar
  • Main B. G. M. , O'Reilly C. A. , Wade J. 1995. The CEO, the board of directors and executive compensation: Economic and psychological perspectives. Industrial and Corporate Change, 4: 293–332. Google Scholar
  • March J. G. 1966. The power of power. In Easton D. (Ed.), Varieties of political theory: 39–70. New York: Prentice Hall. Google Scholar
  • March J. G. , Olsen J. P. 1976. Ambiguity and choice in organizations. Bergen: Universitetsforlaget. Google Scholar
  • Marquis C. , Lounsbury M. 2007. Vive la resistance: Competing logics and the consolidation of U.S. community banking. Academy of Management Journal, 50: 799–820.LinkGoogle Scholar
  • Matsunaga S. R. , Yeung E. 2008. Evidence on the impact of a CEO's financial experience on the quality of the firm's financial reports and disclosures. Google Scholar
  • Meyer A. D. 1982. Adapting to environmental jolts. Administrative Science Quarterly, 27: 515–537. Google Scholar
  • Meyer R. E. , Hammerschmid G. 2006. Changing institutional logics and executive identities: A managerial challenge to public administration in Austria. American Behavioral Scientist, 49: 1000–1014. Google Scholar
  • Mizruchi M. S. 1983. Who controls whom? An examination of the relation between management and boards of directors in large American corporations. Academy of Management Review, 8: 426–435.LinkGoogle Scholar
  • Nigam A. , Ocasio W. 2010. Event attention, environmental sensemaking, and change in institutional logics: An inductive analysis of the effects of public attention to Clinton's health care reform initiative. Organization Science, 21: 823–841. Google Scholar
  • Ocasio W. 1994. Political dynamics and the circulation of power: CEO succession in U.S. industrial corporations, 1960–1990. Administrative Science Quarterly, 39: 285–312. Google Scholar
  • Ocasio W. 1997. Towards an attention-based view of the firm. Strategic Management Journal, 18: 187–206. Google Scholar
  • Ocasio W. , Kim H. 1999. The circulation of corporate control: Selection of functional backgrounds of new CEOs in large US manufacturing firms, 1981–1992. Administrative Science Quarterly, 44: 532–562. Google Scholar
  • Palmer D. , Barber B. M. 2001. Challengers, elites, and owning families: A social class theory of corporate acquisitions in the 1960s. Administrative Science Quarterly, 46: 87–120. Google Scholar
  • Pettigrew A. M. 1992. On studying managerial elites. Strategic Management Journal, 13: 163–182. Google Scholar
  • Pfeffer J. 1981. Management as symbolic action: The creation and maintenance of organizational paradigms. Research in Organizational Behavior, 3: 1–52. Google Scholar
  • Pfeffer J. S. , Salancik G. 1978. The external control of organizations: a resource dependence perspective. New York: Harper & Row. Google Scholar
  • Porac J. F. , Wade J. B. , Pollock T. G. 1999. Industry categories and the politics of the comparable firm in CEO compensation. Administrative Science Quarterly, 44: 112–144. Google Scholar
  • Powell W. W. , Colyvas J. A. 2008. Microfoundations of institutional theory. In Greenwood R.Oliver C.Sahlin-Andersson K.Suddaby R. (Eds.), The Sage handbook of organizational institutionalism: 276–298. London: Sage. Google Scholar
  • Reay T. , Hinings C. R. 2009. Managing the rivalry of competing institutional logics. Organization Studies, 30: 629–652. Google Scholar
  • Rechner P. L. , Dalton D. R. 1991. CEO duality and organizational performance: A longitudinal analysis. Strategic Management Journal, 33: 834–859. Google Scholar
  • Roe M. J. 1994. Strong managers, weak owners: The political roots of American corporate finance. Princeton, NJ: Princeton University Press. Google Scholar
  • Rosenstein S. , Wyatt J. G. 1990. Outside directors, board independence, and shareholder wealth. Journal of Financial Economics, 26: 175–191. Google Scholar
  • Seo M. G. , Creed W. D. 2002. Institutional contradictions, praxis, and institutional change: A dialectical perspective. Academy of Management Review, 27: 222–247.LinkGoogle Scholar
  • Shen W. , Cannella A. A. 2002. Power dynamics within top management and their impacts on CEO dismissal followed by inside succession. Academy of Management Journal, 45: 1195–1206.LinkGoogle Scholar
  • Shipilov A. V. , Greve H. R. , Rowley T. J. 2010. When do interlocks matter? Institutional logics and the diffusion of multiple corporate governance practices. Academy of Management Journal, 53: 846–864.LinkGoogle Scholar
  • Song J. H. 1982. Diversification strategies and the experience of top executives of large firms. Strategic Management Journal, 3: 377–380. Google Scholar
  • Sonnenfeld J. 2004. Good governance and the misleading myths of bad metrics. The Academy of Management Executive (1993–2005), 18: 108–113.AbstractGoogle Scholar
  • Spencer Stuart Board Services. 2011. Spencer Stuart Board Index: Board trends and practices at S&P corporations. Retrieved from https://content.spencerstuart.com/sswebsite/pdf/lib/SSBI_2011_final.pdf [accessed September 19, 2014]. Google Scholar
  • Thornton P. H. , Ocasio W. 1999. Institutional logics and the historical contingency of power in organizations: Executive succession in the higher education publishing industry, 1958–1990. American Journal of Sociology, 105: 801–843. Google Scholar
  • Thornton P. H. , Ocasio W. 2008. Institutional logics. In Greenwood R.Oliver C.Sahlin-Andersson K.Suddaby R. (Eds.), The Sage handbook of organizational institutionalism: 99–129. Thousand Oaks, CA: Sage. Google Scholar
  • Thornton P. H. , Ocasio W. , Lounsbury M. 2012. The institutional logics perspective: A new approach to culture, structure, and process. Oxford: Oxford University Press. Google Scholar
  • Tsang E. W. K. , Kwan K. 1999. Replication and theory development in organizational science: A critical realist perspective. Academy of Management Review, 24: 759–780.LinkGoogle Scholar
  • Tyre M. J. , Orlikowski W. J. 1994. Windows of opportunity: Temporal patterns of technological adaptation in organizations. Organization Science, 5: 98–118. Google Scholar
  • Useem M. 1993. Executive defense: Shareholder power and corporate reorganization. Cambridge, MA: Harvard University Press. Google Scholar
  • Useem M. 1996. Investor capitalism: How money managers are changing the face of corporate America. New York: Basic Books/HarperCollins. Google Scholar
  • U.S. Securities and Exchange Commission, 2003. SEC Approves NYSE. NASDAQ strengthening of corporate governance standards, http://www.sec.gov/rules/sro/34-48108.htm. November 2003. Google Scholar
  • Vancil R. F. 1987. Passing the baton: Managing the process of CEO succession. Boston, MA: Harvard Business School Press. Google Scholar
  • Wade J. , O'Reilly C. A. , Chandratat I. 1990. Golden Parachutes: CEOs and the Exercise of Social Influence. Administrative Science Quarterly, 35: 587–603. Google Scholar
  • Weisbach M. S. 1988. Outside directors and CEO turnover. Journal of financial Economics, 20: 431–460. Google Scholar
  • Westphal J. D. 1998. Board games: How CEOs adapt to increases in structural board independence from management. Administrative Science Quarterly, 43: 511–537. Google Scholar
  • Westphal J. D. 1999. Collaboration in the boardroom: Behavioral and performance consequences of CEO-board social ties. Academy of Management Journal, 42: 7–24.LinkGoogle Scholar
  • Westphal J. D. , Graebner M. E. 2010. A matter of appearances: How corporate leaders manage the impressions of financial analysts about the conduct of their boards. Academy of Management Journal, 53: 15–44.LinkGoogle Scholar
  • Westphal J. D. , Khanna P. 2003. Keeping directors in line: Social distancing as a control mechanism in the corporate elite. Administrative Science Quarterly, 48: 361–398. Google Scholar
  • Westphal J. D. , Zajac E. J. 1994. Substance and symbolism in CEOs' long-term incentive plans. Administrative Science Quarterly, 39: 367–390. Google Scholar
  • Westphal J. D. , Zajac E. J. 1995. Who shall govern? CEO/board power, demographic similarity, and new director selection. Administrative Science Quarterly, 40: 60–83. Google Scholar
  • Westphal J. D. , Zajac E. J. 1997. Defections from the inner circle: Social exchange, reciprocity, and the diffusion of board independence in U.S. corporations. Administrative Science Quarterly, 42: 161–183. Google Scholar
  • Wiersema M. F. , Zhang Y. 2011. CEO dismissal: The role of investment analysts. Strategic Management Journal, 32: 1161–1182. Google Scholar
  • Winter R. K. 1977. State law, shareholder protection, and the theory of the corporation. Journal of Legal Studies, 6: 251. Google Scholar
  • Yamaguchi K. 1991. Event history analysis. Newbury Park, CA: Sage. Google Scholar
  • Zajac E. J. , Kraatz M. S. , Bresser R. K. 2000. Modeling the dynamics of strategic fit: A normative approach to strategic change. Strategic Management Journal, 21: 429–453. Google Scholar
  • Zajac E. J. , Westphal J. D. 1995. Accounting for the explanations of CEO compensation: Substance and symbolism. Administrative Science Quarterly, 40: 283–308. Google Scholar
  • Zajac E. J. , Westphal J. D. 1996. Director reputation, CEO–board power, and the dynamics of board interlocks. Administrative Science Quarterly, 41: 507–529. Google Scholar
  • Zald M. N. 1969. The power and functions of boards of directors: A theoretical synthesis. American Journal of Sociology, 75: 97–111. Google Scholar
  • Zorn D. , Dobbin F. , Dierkes J. , Kwok M.-S. 2005. Managing investors: How financial markets reshaped the American firm. In Knoor Cetina K.Preda A. (Eds.), The sociology of financial markets: 269–289. Oxford: Oxford University Press. Google Scholar
  • Zorn M. L. , Shropshire C. , Martin J. A. , Combs J. G. 2013. Lone-insider boards: Agency prescriptions and governance costs. Working Paper, Florida State University, Tallahassee, FL. Google Scholar
  • Zucker L. G. 1991. Postscript: Microfoundations of institutional thought. In Powell W. W.DiMaggio P. J. (Eds.), The new institutionalism in organizational analysis: 103–167. Chicago: University of Chicago Press. Google Scholar
  • Zuckerman E. W. 2000. Focusing the corporate product: Securities analysts and de-diversification. Administrative Science Quarterly, 45: 591–619. Google Scholar
Academy of Management
  Academy of Management
  555 Pleasantville Road, Suite N200
  Briarcliff Manor, NY 10510-8020, USA
  Phone: +1 (914) 326-1800
  Fax: +1 (914) 326-1900