Bringing in a Neutral Party: Demographic Faultlines and the Appointment of an Outsider Board Chair

Sociopolitical models of board governance posit that directors split into factions, often along demographic lines, potentially increasing conflict that hurts the board's functioning. Yet little knowledge exists about how boards adapt their composition or leadership to reduce conflict. In this study, we develop theory to propose that boards with strong demographic faultlines between factions will seek a compromise by appointing an outsider board chair. We further argue that the strength of this relationship depends on the likelihood of conflict across faultlines, the availability of an alternative impartial leader on the board, and the salience of pressures from outside the board. Analyses on a sample of 1,345 non-CEO board chair appointments at S&P 1500 firms between the years 2003 and 2017 support our hypotheses.