When board politics pick the boss: Why divided companies turn to newcomer chairs
When boards are divided by internal factions, choosing a leader becomes less about experience and more about compromise. New research shows why companies under these conditions often turn to newcomer chairs with minimal board tenure.
After Elon Musk was required to step down as Tesla’s chair in 2018, many governance experts argued that the company needed an entirely fresh presence at the head of the board.
For some observers, only someone with no ties to Musk or his board rivals could stabilize the situation. They called for someone with “no baggage”, who could lead from a position of neutrality. Yet Musk’s influence remained powerful. Rather than electing an outsider, the board ultimately selected an existing director who was loyal to Musk. The episode demonstrated how even high-profile boards struggle to pick a chair when internal factions are at odds.
Understanding how these choices come about is the focus of a recent study by Robert Langan (Esade), Ryan Krause (University of Iowa), and Markus Menz (University of Geneva/IMD), published in the Journal of Management. The researchers analyzed 2,199 board chair appointments in S&P 1500 firms between 2001 and 2017.
Their objective was to identify the forces that determine who becomes board chair and why, particularly in cases where the chosen chair is a relative newcomer to the board.
They discovered that the factors that drive the decision-making behind choosing a board chair are not always obvious, and can include internal politics, competing factions and CEO influence.
Why pick a chair who barely knows the company?
The board chair’s role is key to corporate governance. The chair guides strategy, sets priorities, represents the company to shareholders and other stakeholders, and manages director interactions. The usual expectation is that the chair must possess extensive firm-specific knowledge and deep familiarity with board operations. Independent chairs in S&P 500 firms typically have an average of 7.3 years of board tenure before being promoted.
The appointment of a newly arrived chair often reflects deep-seated divisions within the board itself
At the same time, however, 13% of independent chairs are newcomers who have served on the board for less than a year. This is surprising. “A newcomer chair may also know very little about how the board functions and what the strengths and weaknesses of the directors are,” says Langan. Unfamiliar with a company’s internal dynamics would normally be considered a significant disadvantage.
So why would a board choose someone with relatively little knowledge about the company and how it is governed? Langan’s findings indicate that, rather than being an oversight or a due diligence failure, newcomer appointments often result from deeper divisions within the board itself.
A divided board cannot choose from within its ranks
Boards, like any group, can split into subgroups based on demographic traits such as gender, age, nationality, and professional background. When subgroup alliances form within the board, and each group holds different beliefs, then tensions rise.
Their lack of loyalties to existing factions makes these newcomers a viable compromise solution
When no subgroup possesses enough power to dominate the others, selecting a chair from within the board becomes politically difficult. No matter who the internal candidate is, they are likely to be perceived as favoring one subgroup over another.
This makes a newcomer chair a more appealing option. As the study explains, a newcomer is often chosen because they have “fewer loyalties to any existing subgroup,” making them a viable compromise. The stronger the divisive beliefs are that separate subgroups, the more rigid the stalemate, and the more likely an outsider will be appointed as chair.
It’s like siblings arguing over who should inherit the family business. They can’t agree, and so they gift it to a cousin to avoid a fight.
The weight of the CEO
When the CEO possesses significant power, they can push the board towards their preferred candidate. This is what happened when Musk stepped down as chair. As Langan notes: “A powerful CEO may be able to exert their influence over the board and tip the scales toward their preference.”
But if a CEO is less influential — perhaps due to weak performance, short tenure, or diminished credibility — the board’s factions remain in deadlock, making a newcomer more likely.
Why company performance matters
Another discovery is that newcomer chairs are more likely to emerge during periods of strong company performance. Why? Good results increase the attractiveness and prestige of the chair role. When leading a successful company is appealing, subgroups fight harder to place someone sympathetic to their interests. As competition intensifies, consensus is harder to reach, and the board is more likely to settle on a newcomer who does not represent a threat to any particular side.
“Positive firm performance may offer fertile ground for subgroups… increasing the salience of their differences,” notes the study.
Conversely, when the company is struggling, subgroups tend to avoid taking responsibility for any potential failures. Nobody wants to be accused of steering the company in the wrong direction, and the incentives to fight over leadership diminish. As a result, the conditions that normally lead to newcomer appointments are less prevalent during downturns.
Analyzing governance
Newcomer chairs don’t signify governance failure. But they are an indication of internal tensions that make compromise the most comfortable option. A newcomer can calm tensions, protect relationships, and allow the board to continue functioning without intensifying internal conflicts. “A newcomer chair appointment may be a compromise solution for a divided board that cannot find consensus,” say the researchers.
Companies should be asking questions. As boards become more diverse and, therefore, more varied in experience and perspective, internal coalitions may become more common. Political dynamics are likely to increase in complexity rather than diminish. Will compromise leadership become a more frequent feature of corporate governance in the years ahead? Or will the influence of powerful CEOs shape, or even override, succession-related board decisions?
The answers to these questions will determine much about the future of corporate leadership. Newcomers may represent a compromise as candidates, but they also help companies to see how power, politics, and performance intertwine at the highest levels of organizational decision-making.