The Perverse Consequence of Firms’ Negative Publicity in Stigmatized Industries: CEOs' Board Appointments

Abstract

This study examines whether and when, in a stigmatized industry, firms’ negative publicity can lead to the appointment of their CEOs to the boards of directors of other firms within that sector. Building on research on ingroup identification and on stigma, we propose that within a stigmatized industry, when a firm receives negative publicity, its CEO is more likely to join the board of other firms in the industry, possibly because these other firms interpret the negative publicity as a sign of the social identification of the CEO with the stigmatized industry. We also suggest that this relationship is more likely when the negative publicity reveals information otherwise not available about the CEO. We test our hypotheses using a novel, hand-collected dataset of 408 CEOs in 205 firms in the global arms industry, between 1998 and 2017, and find that within this stigmatized industry, when a firm receives negative publicity, its CEO is more likely to join the board of other firms in the industry, and that lower levels of CEOs’ reputational capital and visibility magnify this effect. Our findings advance the conversations in stigma research about upper echelons, highlighting the importance of internal and external actors and of the type of stigma, when investigating the consequences of stigma for upper echelons’ careers.