When boycotts or protests take place because of the stance a company takes on climate change or social issues, some directors end up quitting governing boards, new research finds. Firms that are boycotted experience a 7% increase in board director turnover, according to Academy of Management Insights published in Academy of Management Journals.
An increase in board turnover happens because corporate crises that arise after companies publicly take sides on contentious social issues also test the beliefs of its directors, and those beliefs influence how they behave during and after boycotts.
“Directors must believe in the values of the firms they represent,” says Mary-Hunter McDonnell of the University of Pennsylvania and co-author of the study. “While existing research has shown that boards of directors are most concerned with a company’s market performance, what we learned is that directors are also sensitive to social performance.”
As might be expected, directors are most likely to leave after boycotts that highlight the fact that the firm’s social values conflict with their personal values. An ideological match between a board member and the activist challengers predicts an exit: liberals are more likely to leave after liberal challenges and conservatives are more likely to leave after conservative challenges.
Conversely, when firms are targeted by movements from the opposing ideology, directors become more loyal. Conservatives, compared to liberals, were especially prone to loyalty when their firms faced challenges from liberal activists.
The link between shared social values and board turnover was stronger after boycotts that caused stock prices to drop.
“Directors will follow their personal convictions and are more motivated to serve a company when its values align with their own,” says McDonnell, noting the importance of finding the best people to serve on boards. “They set the rules of the game.”
When seeking employees and board members, firms must pay particular attention to millennials. “They are strongly entrenched in matters of social justice and social movements and they, more than any other generation, appear to be willing to give up their salaries to achieve social impact,” McDonnell says.