Shareholder activists are motivated to try to force a change at a company for a variety of reasons: low stock prices, underperforming financials, operational inefficiencies, a lack of transparency, corporate governance issues, lapsed social and environmental responsibilities—you name it.
Whatever the goal, the impact on the board members involved can be unnerving and contentious, and once completed, may carry long-term consequences. Just how do those kinds of shareholder activist events shape the relationships among directors in the boardroom? How do the directors’ emotions evolve, and at what psychological costs? And what are the implications for board members attempting to move forward together in the wake of such situations?
To answer these questions and more, research by McIntire Professors Jeremy Marcel and Amanda Cowen offers a new approach to capture a nuanced view of group dynamics and relationships after an activist episode. Their paper, “Legacies of Shareholder Activism: The Dynamics & Consequences of Emotion in the Boardroom,” published in the Academy of Management Review, provides a novel emotional lens to examine the consequences of activism, its effect on board dynamics and director well-being, and other individual and organizational outcomes.
Their scholarship focuses on multiple facets of director emotions, which is distinct from the body of socio-cognitive research preceding their work. Marcel, who serves as McIntire’s Management Area Coordinator, and Cowen, who serves as the School’s Interim John A. Griffin Dean, explore how directors’ experiences during and after activist episodes are capable of stirring up adverse responses that threaten their identities, group dynamics, and the effective functioning of the board itself.
“In the board context, we expect that activist episodes associated with greater emotional costs will be more frequently recalled, producing negative mood and altering how directors evaluate the rewards of future board service,” the faculty members write.
Their research also demonstrates that the emotional costs—psychological strain—on board members who go through activist episodes can linger, impacting directors’ well-being, how they perceive their fellow board members, and how they think about board service.
This is an opportune time, the McIntire professors say, to provide their theory illuminating the long-term outcomes of activism and challenging the belief that cognition alone fully explains the behavior of directors. “Boards encounter many situations that activate emotion, and whether it is displayed or not, directors’ emotions have meaningful impacts on them and their work,” Marcel and Cowen write. “Our theory also more broadly highlights the relevance of emotion, and emotional theory, to understanding boardroom dynamics and governance outcomes. As such, it represents a meaningful addition to the body of work on behavioral governance. Emotion has not typically been discussed as part of this ‘content,’ but our theory reveals how it is part of the same governance conversation.”
The practical implications of their work for directors and boards can be useful in stressful, high-stakes decisions when it comes to governance, including the importance of considering emotional norms, regulation, and costs for directors, as emotion affects judgment and decision-making, including the impact of activism episodes on CEOs and management.
Read more about Marcel and Cowen’s work in the Academy of Management.
