Corporate misconduct can have devastating consequences for organizational stakeholders. Yet firms diverge sharply in how their boards respond to such infringements, especially when deciding whether to dismiss the CEO. We theorize that boards interpret misconduct through the lens of organizational identity orientation—that is, the nature of assumed relationships between an organization and its stakeholders. Using a machine learning analysis of shareholder letters from S&P 500 firms (2004–2017), we show that organizational identity orientation shapes dismissal decisions. Firms with individualistic orientations, which emphasize personal achievement, are more likely to dismiss CEOs as misconduct is seen as an individual failing. In contrast, firms with collectivistic orientations, which emphasize interdependence, are less likely to dismiss CEOs as misconduct is interpreted as diffuse and systemic. These findings reveal how organizational identity orientation shapes boards’ interpretations of responsibility, offering new insights into why firms experience different accountability outcomes in response to wrongdoing.
Fewer et al. (Fri,) studied this question.