Boardroom politics under rising populism: Performance feedback and the appointment of political directors

Abstract

We examine whether firms appoint former politicians to corporate boards in response to financial performance feedback. Integrating the behavioral theory of the firm with research on corporate political connections, we argue that performance feedback does not translate mechanically into political board appointments. Instead, the effect of performance deviations on the appointment of political directors is moderated by the ideological character of the political environment. Using data on Spanish listed firms from 1990 to 2023, we find that performance deviations from aspiration levels are associated with a lower likelihood of appointing former politicians. However, populist ideology moderates this baseline relationship. Far-left populism attenuates and can reverse the negative association at higher levels, whereas far-right populism reinforces it, particularly under below-aspiration performance. Our study contributes to research on performance feedback, nonmarket strategy, and political connections by showing that firms’ governance responses to performance discrepancies depend on the ideological form institutional uncertainty takes.