Janus-Faced Factional Divides – Can Independence-Based Faultlines Foster Board Effectiveness Following Corporate Failures?
Type
conference paper
Date Issued
2025-07-04
Author(s)
Abstract
In this study, we endeavor to reveal the Janus face of boardroom factional faultlines. Contrary to conventional wisdom which stresses the detrimental effects of factional faultlines in creating schisms, distrust, and conflicts among members of work teams, our study shows that when the factional faultlines on the board are configured along the independent vs. non-independent statuses of directors, they are conducive to enhanced board decision making effectiveness in the face of corporate failures through reversing the marginalized positions of independent directors, heightening their motivation to fulfil the monitoring authority, and reducing the likelihood of collusion between independent and non-independent directors. Adopting a quasi-experimental research design with matched samples of listed Chinese firms, this study features how the presence of factional faultlines between independent and non-independent directors shapes boardroom dynamics and subsequent decision making outcomes in the contexts of two distinct types of corporate failures – i.e., competence failures and integrity failures. We find that in the wake of corporate failures, independence-based factional faultlines tend to reduce the level of dissent in board meetings. We also note that the influence of such factional faultlines on the board’s engagement in disciplinary actions and firm’s turnaround is conditional on the nature of the corporate failure. Our findings contribute to advancing the knowledge in board independence, factional faultlines, and leadership in crisis.
Language
English
Event Title
Academy of International Business Conference
Event Location
Louisville, USA
Event Date
June 28-July 2
Contact Email Address
xiaoxu.zhang@unisg.ch