Title: Corporate governance and knowledge management: how board independence may increase CEO paranoia and lead to increased top management team homophily

Authors: Mason A. Carpenter, James D. Westphal, Michael McDonald

Addresses: Wisconsin School of Business, University of Wisconsin-Madison, 975 University Avenue, Madison, WI 53706, USA. ' Stephen M. Ross School of Business, University of Michigan, 701 Tappan St., Ann Arbor, MI 48109-1234, USA. ' Management Department, College of Business Administration, University of Central Florida, 4000 Central Florida Blvd., Orlando, FL 32816, USA

Abstract: This study suggests that board changes aimed at bolstering the monitoring role of governance may inadvertently undermine a firm|s knowledge management capabilities through increases in Top Management Team (TMT) homophily. We theorise how changes in board composition that increase the board|s social independence from CEOs affect TMT member selection through symptoms of CEO non-clinical paranoia about their relations with the board. Our theory is tested with data from an original survey of CEOs and outside directors from 263 large- and medium-sized US global corporations, together with archival data on board composition and management characteristics. We submit that CEOs manifesting non-clinical paranoia are more likely to appoint executives like themselves to the top team; and these new executives also have fewer ties to the board. Results suggest that social psychological cognitions among corporate leaders may lead to TMT homophily – that is, less diversity in TMTs, including diversity of social network ties.

Keywords: CEOs; chief executive officers; TMT; top management teams; corporate governance; knowledge management; KM; social psychology; homophily; company boards; monitoring; board composition; directors; social independence; member selection; non-clinical paranoia; USA; United States; management characteristics; multinational corporations; MNCs; diversity; social networks; strategic change management; knowledge governance.

DOI: 10.1504/IJSCM.2010.035850

International Journal of Strategic Change Management, 2010 Vol.2 No.4, pp.327 - 351

Available online: 06 Oct 2010 *

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