Executive Personal Misconduct: An Existential Stigma that Increases the Likelihood of Director Exit

Abstract

This study examines how an executive personal misconduct event is associated with negative organizational and reputational signals and engenders an increased likelihood that an outside director will exit a firm. Specifically, I hypothesize that an executive personal misconduct event – which is conceptualized as a top executive’s immoral character indiscretion unrelated to the operations of the firm and carried out strictly for private benefit – may increase the likelihood of outside director exit. This executive personal misconduct context enables theoretical development in stigma theory by clarifying how reputational penalties transform an originating existential stigma into an achieved stigma that spreads to the highest point of a firm: the board of directors. Thus, this study suggests that the personal character and misbehavior of the top executive is an underexplored significant type of misconduct that may create negative implications for a firm and its associated leaders.