Last to Come and Last to Go? On the Complex Role of Gender and Ethnicity in the Reputational Penalties for Directors Linked to Corporate Fraud

Ivana Naumovska, Georg Wernicke & Edward J. Zajac. 2020. 'Last to Come and Last to Go? on the Complex Role of Gender and Ethnicity in the Reputational Penalties for Directors Linked to Corporate Fraud.' Academy of Management Journal, 63(3): 881-902

48 Pages Posted: 3 Nov 2020

Date Written: October 28, 2020

Abstract

Scholars have found consistent evidence that directors who served on boards of firms accused of misconduct face reputational penalties in the director labor market. While this is often interpreted in terms of an ex post settling-up process that penalizes directors for failing in their role as monitors of management, the fundamentally social basis of the director labor market suggests that the ex post settling-up process may also incorporate a resource-provisioning role for directors as conferrers of legitimacy. We analyze how growing socio-economic pressures that aim to redress the longstanding underrepresentation of female and ethnic minority directors may lessen—for these sought-after directors—the penalties typically imposed by the labor market in the aftermath of corporate misconduct. Using a rich proprietary dataset on financial misconduct and directors’ demographic characteristics, we find strong support for our hypotheses regarding a possible “reputational immunity” effect. We also provide supplementary analyses demonstrating the specific mechanisms underlying our predictions, and establishing the robustness of the results to a variety of alternative explanations. We discuss the implications of our theoretical perspective and empirical findings for future research on corporate governance, corporate misconduct, and the duality of minority status as it relates to discriminatory outcomes in modern labor markets.

Keywords: corporate misconduct, ex-post settling up, board of directors, minority directors, board diversity

JEL Classification: G3

Suggested Citation

Naumovska, Ivana and Wernicke, Georg and Zajac, Edward J., Last to Come and Last to Go? On the Complex Role of Gender and Ethnicity in the Reputational Penalties for Directors Linked to Corporate Fraud (October 28, 2020). Ivana Naumovska, Georg Wernicke & Edward J. Zajac. 2020. 'Last to Come and Last to Go? on the Complex Role of Gender and Ethnicity in the Reputational Penalties for Directors Linked to Corporate Fraud.' Academy of Management Journal, 63(3): 881-902, Available at SSRN: https://ssrn.com/abstract=3720671 or http://dx.doi.org/10.2139/ssrn.3720671

Ivana Naumovska (Contact Author)

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore

Georg Wernicke

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

Edward J. Zajac

Northwestern University - Kellogg School of Business ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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