Who Will Serve the Reputationally Compromised Boards? Politicians’ Appointment to the Boards of Chinese MNCs in the US

Abstract

The appointment of politicians to the corporate boards has long been recognized as an important strategy for multinational corporations (MNCs) to navigate the institutional challenges in foreign markets. While extant scholarship acknowledges the firm’s needs in the foreign markets that are served by the resources possessed by the politician, there is limited understanding of a politician’s considerations in a politician’s appointment decision. In this study, we consider both firms’ and politicians’ perspectives and theorize the appointment of politicians to the boards as a mutual selection process in which both firm and politician select each other. Emerging markets multinational corporations (EMNCs) suffer severe legitimacy challenges in developed countries due to the liability-of-origin, therefore, EMNCs are more motivated to bring-in politician directors with high political capital to overcome their legitimacy challenges, but these politicians may not join the EMNCs due to the potential reputational loss of associating with EMNCs. Using politician-year level dataset of politician director appointments made by Chinese MNCs operating in the United States, our Cox hazard regression results find an inverted U-shape relationship between a politician’s political capital and his/her likelihood of joining the board of Chinese MNCs. As such, a politician having a moderate level of political capital is more likely to join the board of a reputationally compromised foreign MNC. This relationship is moderated by firm ownership. Specifically, the effect is stronger when Chinese MNCs are state owned and weaker in the case of joint venture. Our study bears rich implications for theory and practice.