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When in Rome, look like caesar? investigating the link between demand-side cultural power distance and CEO power

Krause, R., Filatotchev, I. & Bruton, G. (2016). When in Rome, look like caesar? investigating the link between demand-side cultural power distance and CEO power. Academy of Management Journal, 59(4), pp. 1361-1384. doi: 10.5465/amj.2014.0532


Agency theory-grounded research on boards of directors and firm legitimacy has historically viewed CEO power as de-legitimating, often taking this fact for granted in theorizing about external assessors' evaluations of a firm. With few exceptions, this literature has focused exclusively on capital market participants (e.g., investors, securities analysts) as the arbiters of a firm's legitimacy and has accordingly assumed that legitimate governance arrangements are those derived from the shareholder-oriented prescriptions of agency theory. We extend this line of research in new ways by arguing that customers also externally assess firm legitimacy, and that firms potentially adjust their governance characteristics to meet customers' norms and expectations. We argue that the cultural-cognitive institutions prevalent in customers' home countries influence their judgments regarding a firm's legitimacy, such that firms competing heavily in highpower distance cultures are more likely to have powerful CEOs, with CEO power a source of legitimacy-rather than illegitimacy-among customers. We also argue that the more dependent a firm is on its customers and the more salient cultural power distance is as a demand-side institutional norm, the greater this relationship will be. Data from 151 U.S. semiconductor and pharmaceutical firms over a 10-year period generally support our predictions.

Publication Type: Article
Publisher Keywords: boards of directors, cultural values and dimensions, institutional theory, stakeholder management
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments: Bayes Business School > Management
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