IDEAS home Printed from https://ideas.repec.org/a/inm/ororsc/v34y2023i2p657-679.html

Just Diverse Among Themselves: How Does Negative Performance Feedback Affect Boards’ Expertise vs. Ascriptive Diversity?

Author

Listed:
  • HeeJung Jung

    (Department of Management and Entrepreneurship, Imperial College London, London SW7 2AZ, United Kingdom)

  • Yonghoon G. Lee

    (Department of Management, The Hong Kong University of Science and Technology, Kowloon, Hong Kong)

  • Sun Hyun Park

    (Graduate School of Business, Seoul National University, Seoul 08826, South Korea)

Abstract

We investigate how negative performance feedback affects board diversity, which is instrumental in shaping a firm’s strategic change. When a firm underperforms compared with its aspiration, its board is motivated to promptly address the underperformance. The board needs to not only help search for strategic alternatives but also quickly build consensus around its strategic reorientation. These two motivations lead the board to value two dimensions of diversity among its members differently. On the one hand, to understand the problem of underperformance and find a solution, the board is motivated to seek new expertise, avoiding redundancy in the pool of expertise already represented in the boardroom. This results in a higher level of diversity in director expertise. On the other hand, the urgent need to build consensus prompts the board to value trust and solidarity and to avoid potential conflict among directors. Because people perceive others with similar ascriptive backgrounds as trustworthy, changes in the board of an underperforming firm are likely to yield a lower level of diversity in its members’ ascriptive backgrounds. These changes in board are affected by the committee chairs of the board whose power and influence are significant in the boardroom. Analyses of the boards of 733 U.S. listed manufacturing firms show that when a firm underperforms compared with its aspirations, it increases the board expertise diversity, but decreases the board ascriptive diversity. When chairs on the board are gender or racial minorities, the negative association between underperformance and the board ascriptive diversity is weakened.

Suggested Citation

  • HeeJung Jung & Yonghoon G. Lee & Sun Hyun Park, 2023. "Just Diverse Among Themselves: How Does Negative Performance Feedback Affect Boards’ Expertise vs. Ascriptive Diversity?," Organization Science, INFORMS, vol. 34(2), pages 657-679, March.
    • Handle: RePEc:inm:ororsc:v:34:y:2023:i:2:p:657-679
    DOI: 10.1287/orsc.2022.1595
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/orsc.2022.1595
    Download Restriction: no
    File URL: https://libkey.io/10.1287/orsc.2022.1595?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Patricia Pitcher & Anne D. Smith, 2001. "Top Management Team Heterogeneity: Personality, Power, and Proxies," Organization Science, INFORMS, vol. 12(1), pages 1-18, February.
    2. Ertimur, Yonca & Ferri, Fabrizio & Stubben, Stephen R., 2010. "Board of directors' responsiveness to shareholders: Evidence from shareholder proposals," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 53-72, February.
    3. Amy J. Hillman & Albert A. Cannella & Ramona L. Paetzold, 2000. "The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change," Journal of Management Studies, Wiley Blackwell, vol. 37(2), pages 235-256, March.
    4. Bernile, Gennaro & Bhagwat, Vineet & Yonker, Scott, 2018. "Board diversity, firm risk, and corporate policies," Journal of Financial Economics, Elsevier, vol. 127(3), pages 588-612.
    5. Pasi Kuusela & Thomas Keil & Markku Maula, 2017. "Driven by aspirations, but in what direction? Performance shortfalls, slack resources, and resource-consuming vs. resource-freeing organizational change," Strategic Management Journal, Wiley Blackwell, vol. 38(5), pages 1101-1120, May.
    6. Cameron, A. Colin & Gelbach, Jonah B. & Miller, Douglas L., 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(2), pages 238-249.
    7. María del Carmen Triana & Toyah L. Miller & Tiffany M. Trzebiatowski, 2014. "The Double-Edged Nature of Board Gender Diversity: Diversity, Firm Performance, and the Power of Women Directors as Predictors of Strategic Change," Organization Science, INFORMS, vol. 25(2), pages 609-632, April.
    8. Vibha Gaba & John Joseph, 2013. "Corporate Structure and Performance Feedback: Aspirations and Adaptation in M-Form Firms," Organization Science, INFORMS, vol. 24(4), pages 1102-1119, August.
    9. Brian R. Golden & Edward J. Zajac, 2001. "When will boards influence strategy? inclination × power = strategic change," Strategic Management Journal, Wiley Blackwell, vol. 22(12), pages 1087-1111, December.
    10. James P. Walsh, 1995. "Managerial and Organizational Cognition: Notes from a Trip Down Memory Lane," Organization Science, INFORMS, vol. 6(3), pages 280-321, June.
    11. Adams, Renée B. & Ferreira, Daniel, 2009. "Women in the boardroom and their impact on governance and performance," Journal of Financial Economics, Elsevier, vol. 94(2), pages 291-309, November.
    12. Kenneth R. Ahern & Amy K. Dittmar, 2012. "The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 137-197.
    13. James D. Westphal & James W. Fredrickson, 2001. "Who directs strategic change? Director experience, the selection of new CEOs, and change in corporate strategy," Strategic Management Journal, Wiley Blackwell, vol. 22(12), pages 1113-1137, December.
    14. Sam Garg & Qiang (John) Li & Jason D. Shaw, 2018. "Undervaluation of directors in the board hierarchy: Impact on turnover of directors (and CEOs) in newly public firms," Strategic Management Journal, Wiley Blackwell, vol. 39(2), pages 429-457, February.
    15. Steven Boivie & Michael C. Withers & Scott D. Graffin & Kevin G. Corley, 2021. "Corporate directors' implicit theories of the roles and duties of boards," Strategic Management Journal, Wiley Blackwell, vol. 42(9), pages 1662-1695, September.
    16. Jerry Goodstein & Kanak Gautam & Warren Boeker, 1994. "The effects of board size and diversity on strategic change," Strategic Management Journal, Wiley Blackwell, vol. 15(3), pages 241-250, March.
    17. Gerben S. Van der Vegt & Simon B. de Jong & J. Stuart Bunderson & Eric Molleman, 2010. "Power Asymmetry and Learning in Teams: The Moderating Role of Performance Feedback," Organization Science, INFORMS, vol. 21(2), pages 347-361, April.
    18. Pino G. Audia & Henrich R. Greve, 2006. "Less Likely to Fail: Low Performance, Firm Size, and Factory Expansion in the Shipbuilding Industry," Management Science, INFORMS, vol. 52(1), pages 83-94, January.
    19. Thomas P. Moliterno & Margarethe F. Wiersema, 2007. "Firm performance, rent appropriation, and the strategic resource divestment capability," Strategic Management Journal, Wiley Blackwell, vol. 28(11), pages 1065-1087, November.
    20. Letian Zhang, 2019. "Who Loses When a Team Wins? Better Performance Increases Racial Bias," Organization Science, INFORMS, vol. 30(1), pages 40-50, February.
    21. Letian Zhang, 2020. "An Institutional Approach to Gender Diversity and Firm Performance," Organization Science, INFORMS, vol. 31(2), pages 439-457, March.
    22. Niclas L. Erhardt & James D. Werbel & Charles B. Shrader, 2003. "Board of Director Diversity and Firm Financial Performance," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(2), pages 102-111, April.
    23. David A. Carter & Betty J. Simkins & W. Gary Simpson, 2003. "Corporate Governance, Board Diversity, and Firm Value," The Financial Review, Eastern Finance Association, vol. 38(1), pages 33-53, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lemaro Thompson, 2026. "Taste-Based Statistical Discrimination: A New Framework for Understanding Organizational Inequality in a Polarized Era," Journal of Business Ethics, Springer, vol. 204(3), pages 663-682, March.
    2. Limin Zhu & Wenlei Yu, 2025. "From superstition to generosity: the role of executives’ luck belief in corporate charitable donations in China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-17, December.
    3. Balachandran, Chanchal & Wennberg, Karl, 2025. "Director turnover in new venture boards: From homophilous to resource-contingent processes," Journal of Business Venturing, Elsevier, vol. 40(5).
    4. Azusa Kadomura & Akiyuki Sekiguchi & Takumi Kato, 2025. "Perceived diversity and skill diversity to utilise demographic diversity: evidence from the factors of employee attitudes in a large Japanese company," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-14, December.
    5. Kim, Minjae & Noh, Ki Bum, 2025. "Board diversity and the timing of drug recalls: Implications for public health and shareholder value," Finance Research Letters, Elsevier, vol. 80(C).
    6. Mark R. DesJardine & Wei Shi & Emilio Marti, 2024. "The Corporate Opportunity Structure for Shareholder Activism: How Activist Hedge Funds Exploit Board Demographic Diversity," Organization Science, INFORMS, vol. 35(2), pages 644-666, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. María del Carmen Triana & Toyah L. Miller & Tiffany M. Trzebiatowski, 2014. "The Double-Edged Nature of Board Gender Diversity: Diversity, Firm Performance, and the Power of Women Directors as Predictors of Strategic Change," Organization Science, INFORMS, vol. 25(2), pages 609-632, April.
    2. Mi‐Hee Lim & Ji‐Hwan Lee, 2023. "How and when female directors effectively cut down acquisition premiums," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 84-101, January.
    3. Nguyen, Tuan & Nguyen, An & Nguyen, Mau & Truong, Thuyen, 2021. "Is national governance quality a key moderator of the boardroom gender diversity–firm performance relationship? International evidence from a multi-hierarchical analysis," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 370-390.
    4. Wongsinhirun, Nopparat & Chatjuthamard, Pattanaporn & Jiraporn, Pornsit, 2023. "Corporate culture and board gender diversity: Evidence from textual analysis," International Review of Financial Analysis, Elsevier, vol. 86(C).
    5. Kamil K. Nazliben & Luc Renneboog & Emil Uduwalage, 2024. "Social Diversity on Corporate Boards in a Country Torn by Civil War," Journal of Business Ethics, Springer, vol. 194(3), pages 679-706, October.
    6. Hernández-Atienza, Fernando & Rodríguez-Sanz, Juan Antonio & Tejerina-Gaite, Fernando, 2024. "The pathways of board diversity in European contexts: Exploring the influence of director types on firm performance," Research in International Business and Finance, Elsevier, vol. 72(PA).
    7. Maria Fátima Ribeiro Borges & Graça Maria do Carmo Azevedo & Jonas Oliveira, 2025. "Literature review on gender diversity in top management teams of companies and its relationship with firm performance and audit quality," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 22(1), pages 177-201, March.
    8. Huang, Peng & Lu, Yue & Wu, Ji, 2023. "Does board diversity in industry-experience boost firm value? The role of corporate innovation," Economic Modelling, Elsevier, vol. 128(C).
    9. Laura Cabeza-García & Esther B. Brío & Carlos Rueda, 2021. "The moderating effect of innovation on the gender and performance relationship in the outset of the gender revolution," Review of Managerial Science, Springer, vol. 15(3), pages 755-778, April.
    10. Dah, Mustafa A., 2025. "Refreshing boards: Countering CEO entrenchment," Research in International Business and Finance, Elsevier, vol. 75(C).
    11. Tim Heubeck & Reinhard Meckl, 2024. "Does board composition matter for innovation? A longitudinal study of the organizational slack–innovation relationship in Nasdaq-100 companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 28(2), pages 597-624, June.
    12. Bedelev, Bogdan, 2023. "The more, the better? Diversification Trends in Executive and Supervisory Boards in Germany and their Potential Effects," Junior Management Science (JUMS), Junior Management Science e. V., vol. 8(3), pages 569-590.
    13. Haroon ur Rashid Khan & Waqas Bin Khidmat & Sadia Awan, 2021. "Board diversity, financial flexibility and corporate innovation: evidence from China," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 303-326, June.
    14. Girardone, Claudia & Kokas, Sotirios & Wood, Geoffrey, 2021. "Diversity and women in finance: Challenges and future perspectives," Journal of Corporate Finance, Elsevier, vol. 71(C).
    15. repec:ipg:wpaper:2014-054 is not listed on IDEAS
    16. Al-Dah, Bilal & Dah, Mustafa A. & El-Helaly, Moataz, 2025. "Board diversity and related party transactions," Finance Research Letters, Elsevier, vol. 77(C).
    17. Al Dah, Bilal & Dah, Mustafa A. & Stathopoulos, Konstantinos, 2026. "Rookie directors and board efficacy," Journal of Corporate Finance, Elsevier, vol. 96(C).
    18. Sheng-Hung Chen & Dariimaa Ganbat & Bai-Rui Hung, 2024. "Does firm’s ownership structure matter to the impact of female directors on corporate social responsibility? Evidence from Taiwan," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 13(8), pages 01-13, November.
    19. Romano, Giulia & Guerrini, Andrea, 2014. "The effects of ownership, board size and board composition on the performance of Italian water utilities," Utilities Policy, Elsevier, vol. 31(C), pages 18-28.
    20. Neckebrouck, Jeroen & Schulze, William S., 2025. "Owner-management, board governance and responses to performance feedback in private firms," Journal of Business Venturing, Elsevier, vol. 40(4).
    21. Rekha Handa, 2021. "Does Presence of Foreign Directors Make a Difference? A Case of Indian IPOs," Business Perspectives and Research, , vol. 9(1), pages 111-127, January.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ororsc:v:34:y:2023:i:2:p:657-679. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.