Following its 40th anniversary and more than three decades after its introduction to the strategic management literature, agency theory remains the predominant theory of corporate governance. In this paper, we examine affect, an underexplored dimension in principal-agent relationships. Using the CEO-board of directors relationship as a context, we develop a theoretical lens that explains how interpersonal affect underlying relationships between CEOs and directors of boards shapes behavior in ways that deviate from traditional agency theory predictions. We discuss how the incorporation of an affective perspective advances principal-agent research by revising agency theory‘s assumptions concerning human nature and behavior and suggesting new research directions. By acknowledging a central role of affect, we connect existing behavioral approaches to organizational agency and advance our understanding of socioemotional foundations of principal-agent tensions, problems, and agency costs.
AllenN. J.MeyerJ. P. (1990). Organizational socialization tactics: A longitudinal analysis of links to newcomers’ commitment and role orientation. Academy of Management Journal, 33(4), 847-858. https://doi.org/10.2307/256294
BaxterL. A.MontgomeryB. M. (1997). Rethinking communication in personal relationships from a dialectical perspective. In DuckS. (Ed.), Handbook of personal relationships: Theory, research, and interventions (pp. 325-349). John Wiley and Sons Inc.
5.
BecerraM.GuptaA. K. (1999). Trust within the organization: Integrating the trust literature with agency theory and transaction costs economics. Public Administration Quarterly, 23(2) 177-203.
6.
Becker, T. E. (1992). Foci and bases of commitment: Are they distinctions worth making?. Academy of Management Journal, 35(1), 232-244.
7.
BergJ.DickhautJ.McCabeK. (1995). Trust, reciprocity, and social history. Games and Economic Behavior, 10(1), 122-142. https://doi.org/10.1006/game.1995.1027
8.
BerleA. A.MeansG. C. (1932). The modern corporation and private property. Macmillan.
9.
BlauP. (1964). Exchange and power in social life. Transaction Publishers.
10.
BoatrightJ. R. (1999). Ethics in finance. Blackwell.
11.
BoivieS.BednarM. K.AguileraR. V.AndrusJ. L. (2016). Are boards designed to fail? The implausibility of effective board monitoring. Academy of Management Annals, 10(1), 319-407. https://doi.org/10.5465/19416520.2016.1120957
12.
BoivieS.LangeD.McDonaldM. L.WestphalJ. D. (2011). Me or we: The effects of CEO organizational identification on agency costs. Academy of Management Journal, 54(3), 551-576. https://doi.org/10.5465/amj.2011.61968081
13.
BosseD. A.PhillipsR. A. (2016). Agency theory and bounded self-interest. Academy of Management Review, 41(2), 276-297. https://doi.org/10.5465/amr.2013.0420
CarpenterM. A.GeletkanyczM. A.SandersW. G. (2004). Upper echelons research revisited: Antecedents, elements, and consequences of top management team composition. Journal of Management, 30(6), 749-778. https://doi.org/10.1016/j.jm.2004.06.001
16.
CartwrightD.HararyF. (1956). Structural balance: A generalization of heider‘s theory. Psychological Review, 63(5), 277. https://doi.org/10.1037/h0046049
17.
CasciaroT. (2014). Affect in organizational networks. In Contemporary perspectives on organizational social networks (pp. 219-238). Emerald Group Publishing Limited.
18.
ChenD. (2007). The behavioral consequences of CEO-board trust and power relationships in corporate governance. Business Renaissance Quarterly, 2(4), 59.
19.
ChowdhuryS. (2005). The role of affect-and cognition-based trust in complex knowledge sharing. Journal of Managerial Issues, 17(3) 310-326.
20.
ChuaR. Y. J.IngramP.MorrisM. W. (2008). From the head and the heart: Locating cognition-and affect-based trust in managers’ professional networks. Academy of Management Journal, 51(3), 436-452. https://doi.org/10.5465/amj.2008.32625956
21.
ContractorN. S.WassermanS.FaustK. (2006). Testing multitheoretical, multilevel hypotheses about organizational networks: An analytic framework and empirical example. Academy of Management Review, 31(3), 681-703. https://doi.org/10.5465/amr.2006.21318925
22.
DailyC. M.DaltonD. R. (1995). CEO And director turnover in failing firms: An illusion of change?Strategic Management Journal, 16(5), 393-400. https://doi.org/10.1002/smj.4250160505
23.
DailyC. M.JohnsonJ. L. (1997). Sources of CEO power and firm financial performance: A longitudinal assessment. Journal of Management, 23(2), 97-117. https://doi.org/10.1177/014920639702300201
24.
DaltonD. R.DailyC. M.CertoS. T.RoengpityaR. (2003). Meta-analyses of financial performance and equity: Fusion or confusion?Academy of Management Journal, 46(1), 13-26. https://doi.org/10.2307/30040673
DaltonD. R.DaltonC. M. (2011). Integration of micro and macro studies in governance research: CEO duality, board composition, and financial performance. Journal of Management, 37(2), 404-411. https://doi.org/10.1177/0149206310373399
27.
DanielsK. (1998). Towards integrating emotions into strategic management research: Trait affect and perceptions of the strategic environment. British Journal of Management, 9(3), 163-168. https://doi.org/10.1111/1467-8551.00081
28.
DavisJ. H.SchoormanF. D.DonaldsonL. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47. https://doi.org/10.2307/259223
29.
DeutschY. (2005). The impact of board composition on firms’ critical decisions: A meta-analytic review. Journal of Management, 31(3), 424-444. https://doi.org/10.1177/0149206304272185
30.
DonaldsonL.DavisJ. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64. https://doi.org/10.1177/031289629101600103
31.
EisenhardtK. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57-74. https://doi.org/10.2307/258191
32.
FamaE. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2), 288-307. https://doi.org/10.1086/260866
33.
FamaE. F.JensenM. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301-325. https://doi.org/10.1086/467037
34.
FehrE.FischbacherU. (2002). Why social preferences matter–the impact of non-selfish motives on competition, cooperation and incentives. The Economic Journal, 112(478), C1-C33. https://doi.org/10.1111/1468-0297.00027
35.
FerrianiS.FontiF.CorradoR. (2012). The social and economic bases of network multiplexity: Exploring the emergence of multiplex ties. Strategic Organization, 11(1), 7-34. https://doi.org/10.1177/1476127012461576
GambettaD. (1988). Trust: Making and breaking cooperative relations. B. Blackwell.
38.
Gomez-MejiaL. R.NeacsuI.MartinG. (2017). CEO risk-taking and socioemotional wealth: The behavioral agency model, family control, and CEO option wealth. Journal of Management, 45(4), 1713-1738. https://doi.org/10.1177/0149206317723711
39.
Gomez-MejiaL. R.Nunez-NickelM.GutierrezI. (2001). The role of family ties in agency contracts. Academy of Management Journal, 44(1), 81-95. https://doi.org/10.2307/3069338
40.
GrahamJ. W.OrganD. W. (1993). Commitment and the covenantal organization. Journal of Managerial Issues, 5(4)483-502.
41.
GranovetterM. (2005). The impact of social structure on economic outcomes. Journal of Economic Perspectives, 19(1), 33-50. https://doi.org/10.1257/0895330053147958
42.
GranovetterM. S. (1977). The strength of weak ties. In Social networks (pp. 347-367). Elsevier.
HansenM. T. (1999). The search-transfer problem: The role of weak ties in sharing knowledge across organization subunits. Administrative Science Quarterly, 44(1), 82-111. https://doi.org/10.2307/2667032
45.
HartD. W.ThompsonJ. A. (2007). Untangling employee loyalty: A psychological contract perspective. Business Ethics Quarterly, 17(2), 297-323. https://doi.org/10.5840/beq200717233
HegtvedtK. A.KillianC. (1999). Fairness and emotions: Reactions to the process and outcomes of negotiations. Social Forces, 78(1), 269-302. https://doi.org/10.2307/3005797
48.
HeiderF. (1958). The psychology of interpersonal relations. John Wiley & Sons Inc.
49.
HermalinB. E.WeisbachM. S. (2001). Boards of directors as an endogenously determined institution: A survey of the economic literature. National Bureau of Economic Research.
50.
HernandezM. (2012). Toward an understanding of the psychology of stewardship. Academy of Management Review, 37(2), 172-193. https://doi.org/10.5465/amr.2010.0363
51.
HillmanA. J.DalzielT. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3), 383-396. https://doi.org/10.2307/30040728
52.
HillmanA. J.NicholsonG.ShropshireC. (2008). Directors’ multiple identities, identification, and board monitoring and resource provision. Organization Science, 19(3), 441-456. https://doi.org/10.1287/orsc.1080.0355
IsenA. M. (1987). Positive affect, cognitive processes, and social behavior. In Advances in experimental social psychology (Vol. 20, pp. 203-253). Elsevier.
JensenM. C.MecklingW. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
58.
JohnsonJ. L.DailyC. M.EllstrandA. E. (1996). Boards of directors: A review and research agenda. Journal of Management, 22(3), 409-438. https://doi.org/10.1177/014920639602200303
59.
JohnsonS. G.SchnatterlyK.HillA. D. (2013). Board composition beyond independence: Social capital, human capital, and demographics. Journal of Management, 39(1), 232-262. https://doi.org/10.1177/0149206312463938
60.
KrackhardtD. (1992). The strength of strong ties: The importance of philos in organizations. In NohriaN.EcclesR. G. (Eds.), Network and Organizations: Structure, Form, and Action. Harvard Business Press, pp. 82–108.
61.
KramerR. (1994). The sinister attribution error: Paranoid cognition and collective distrust in organizations. Motivation and Emotion, 18(2), 199-230. https://doi.org/10.1007/BF02249399
62.
KramerR.TylerT. (1995). Trust in organizations: Frontiers of theory and research. Sage Publications.
63.
LabiancaG.BrassD. (2006). Exploring the social ledger: Negative relationships and negative asymmetry in social networks in organizations. Academy of Management Review, 31(3), 596-614. https://doi.org/10.5465/amr.2006.21318920
64.
LabiancaG.BrassD.GrayB. (1998). Social networks and perceptions of intergroup conflict: The role of negative relationships and third parties. Academy of Management Journal, 41(1), 55-67. https://doi.org/10.2307/256897
LangeD.BoivieS.WestphalJ. D. (2015). Predicting organizational identification at the CEO level. Strategic Management Journal, 36(8), 1224-1244. https://doi.org/10.1002/smj.2283
67.
LawrenceB. S. (1997). Perspective—the black box of organizational demography. Organization Science, 8(1), 1-22. https://doi.org/10.1287/orsc.8.1.1
68.
LazarusR. S. (1994). The stable and the unstable in emotion. In EkmanP.DavidsonR. (Eds.), The nature of emotion: Fundamental questions (pp. 79-85). Oxford University Press.
69.
LewickiR. J.BunkerB. B. (1995). Trust in relationships. Administrative Science Quarterly, 5(1), 583-601.
70.
Lewicki, R., & Bunker, B. (1996). Developing and maintaining trust in work relationships. SAGE Publications, Inc., https://doi.org/10.4135/9781452243610
71.
LewickiR. J.McAllisterD. J.BiesR. J. (1998). Trust and distrust: New relationships and realities. Academy of Management Review, 23(3), 438-458. https://doi.org/10.2307/259288
72.
MacNeil, I. R. (1985). Relational contract: What we do and do not know. Wisconsin Law Review, 483-525.
73.
McAllisterD. J. (1995). Affect-and cognition-based trust as foundations for interpersonal cooperation in organizations. Academy of Management Journal, 38(1), 24-59. https://doi.org/10.2307/256727
74.
McDonaldM. L.WestphalJ. D. (2003). Getting by with the advice of their friends: CEOs’ advice networks and firms’ strategic responses to poor performance. Administrative Science Quarterly, 48(1), 1-32. https://doi.org/10.2307/3556617
75.
McDonaldM. L.WestphalJ. D. (2011). My brother‘s keeper? CEO identification with the corporate elite, social support among CEOs, and leader effectiveness. Academy of Management Journal, 54(4), 661-693. https://doi.org/10.5465/amj.2011.64869104
76.
McKnightD. H.CummingsL. L.ChervanyN. L. (1998). Initial trust formation in new organizational relationships. Academy of Management Review, 23(3), 473-490. https://doi.org/10.2307/259290
MischelW. (1968). Personality and assessment. Wiley.
79.
NadkarniS.HerrmannP. O. L. (2010). CEO Personality, strategic flexibility, and firm performance: The case of the Indian business process outsourcing industry. Academy of Management Journal, 53(5), 1050-1073. https://doi.org/10.5465/amj.2010.54533196
80.
NahapietJ.GhoshalS. (1998). Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23(2), 242-266. https://doi.org/10.2307/259373
81.
NgK.-Y.ChuaR. Y. (2006). Do I contribute more when I trust more? Differential effects of cognition-and affect-based trust. Management and Organization Review, 2(1), 43-66. https://doi.org/10.1111/j.1740-8784.2006.00028.x
82.
OcasioW. (1994). Political dynamics and the circulation of power: CEO succession in US industrial corporations, 1960–1990. Administrative Science Quarterly, 39(2), 285-312. https://doi.org/10.2307/2393237
83.
O‘DonohueW.SheehanC.HeckerR.HollandP. (2007). The psychological contract of knowledge workers. Journal of Knowledge Management, 11(2), 73-82. https://doi.org/10.1108/13673270710738924
84.
OlekalnsM.SmithP. L. (2009). Mutually dependent: Power, trust, affect and the use of deception in negotiation. Journal of Business Ethics, 85(3), 347-365. https://doi.org/10.1007/s10551-008-9774-4
85.
OuchiW. G. (1979). A conceptual framework for the design of organizational control mechanisms. Management Science, 25(9), 833-848. https://doi.org/10.1287/mnsc.25.9.833
86.
ParayitamS.DooleyR. S. (2009). The interplay between cognitive- and affective conflict and cognition- and affect-based trust in influencing decision outcomes. Journal of Business Research, 62(8), 789-796. https://doi.org/10.1016/j.jbusres.2008.02.006
87.
ParkS. H.WestphalJ. D. (2013). Social discrimination in the corporate elite: How status affects the propensity for minority CEOs to receive blame for low firm performance. Administrative Science Quarterly, 58(4), 542-586. https://doi.org/10.1177/0001839213509364
88.
PepperA.GoreJ. (2015). Behavioral agency theory: New foundations for theorizing about executive compensation. Journal of Management, 41(4), 1045-1068. https://doi.org/10.1177/0149206312461054
89.
PetersonS. J.WalumbwaF. O.ByronK.MyrowitzJ. (2009). CEO Positive psychological traits, transformational leadership, and firm performance in high-technology start-up and established firms. Journal of Management, 35(2), 348-368. https://doi.org/10.1177/0149206307312512
90.
PfefferJ. (1994). Managing with power: Politics and influence in organizations. Harvard Business Press.
91.
PruittD. G.RubinJ. Z. (1986). Social conflict: Escalation, impasse, and resolution. Addision-Wesley.
92.
PyeA. (2002). The changing power of ‘explanations’: Directors, academics and their sensemaking from 1989 to 2000. Journal of Management Studies, 39(7), 907-925. https://doi.org/10.1111/1467-6486.00317
93.
ReagansR.McEvilyB. (2003). Network structure and knowledge transfer: The effects of cohesion and range. Administrative Science Quarterly, 48(2), 240-267. https://doi.org/10.2307/3556658
94.
RempelJ. K.HolmesJ. G.ZannaM. P. (1985). Trust in close relationships. Journal of Personality and Social Psychology, 49(1), 95. https://doi.org/10.1037/0022-3514.49.1.95
95.
RobertsJ.McNultyT.StilesP. (2005). Beyond agency conceptions of the work of the non-executive director: Creating accountability in the boardroom. British Journal of Management, 16(S1), S5-S26. https://doi.org/10.1111/j.1467-8551.2005.00444.x
RousseauD. (1995). Psychological contracts in organizations: Understanding written and unwritten agreements. Sage publications.
98.
Rousseau, D. M., & McLean Parks, J. (1993). The contracts of individuals and organizations. Research in organizational behavior, 15(1), 1-43.
99.
ShaniG.WestphalJ. D. (2016). Persona non grata? Determinants and consequences of social distancing from journalists who engage in negative coverage of firm leadership. Academy of Management Journal, 59(1), 302-329. https://doi.org/10.5465/amj.2013.1162
ShenW.CannellaJr, A. A. (2003). Will succession planning increase shareholder wealth? Evidence from investor reactions to relay CEO successions. Strategic Management Journal, 24(2), 191-198. https://doi.org/10.1002/smj.280
102.
SnijdersT. A.Van de BuntG. G.SteglichC. E. (2010). Introduction to stochastic actor-based models for network dynamics. Social Networks, 32(1), 44-60. https://doi.org/10.1016/j.socnet.2009.02.004
103.
SternI.WestphalJ. D. (2010). Stealthy footsteps to the boardroom: Executives’ backgrounds, sophisticated interpersonal influence behavior, and board appointments. Administrative Science Quarterly, 55(2), 278-319. https://doi.org/10.2189/asqu.2010.55.2.278
104.
ThompsonJ. A.BundersonJ. S. (2003). Violations of principle: Ideological currency in the psychological contract. Academy of Management Review, 28(4), 571-586. https://doi.org/10.2307/30040748
105.
TuggleC. S.SirmonD. G.ReutzelC. R.BiermanL. (2010). Commanding board of director attention: Investigating how organizational performance and CEO duality affect board members’ attention to monitoring. Strategic Management Journal, 31(9), 946-968. https://doi.org/10.1002/smj.847
106.
VenkataramaniV.LabiancaG. J.GrosserT. (2013). Positive and negative workplace relationships, social satisfaction, and organizational attachment. Journal of Applied Psychology, 98(6), 1028. https://doi.org/10.1037/a0034090
107.
VoronovM.VinceR. (2012). Integrating emotions into the analysis of institutional work. Academy of Management Review, 37(1), 58-81https://doi.org/10.5465/armr.2010.0247.
108.
WeimerJ.PapeJ. (1999). A taxonomy of systems of corporate governance. Corporate Governance: An International Review, 7(2), 152-166. https://doi.org/10.1111/1467-8683.00143
109.
WeissH. M.CropanzanoR. (1996). Affective events theory: A theoretical discussion of the structure, causes and consequences of affective experience at work. Research in Organizational Behavior, 18(1), 1-74.
110.
WestphalJ. D. (1998). Board games: How CEOs adapt to increases in structural board independence from management. Administrative Science Quarterly, 43(3), 511-537. https://doi.org/10.2307/2393674
111.
WestphalJ. D. (1999). Collaboration in the boardroom: Behavioral and performance consequences of CEO-board social ties. Academy of Management Journal, 42(1), 7-24. https://doi.org/10.2307/256871
112.
WestphalJ. D.BednarM. K. (2005). Pluralistic ignorance in corporate boards and firms’ strategic persistence in response to low firm performance. Administrative Science Quarterly, 50(2), 262-298. https://doi.org/10.2189/asqu.2005.50.2.262
113.
WestphalJ. D.BednarM. K. (2008). The pacification of institutional investors. Administrative Science Quarterly, 53(1), 29-72. https://doi.org/10.2189/asqu.53.1.29
114.
WestphalJ. D.BoivieS.ChngD. (2006). The strategic impetus for social network ties: Reconstituting broken CEO friendship ties. Strategic Management Journal, 27(5), 425-445. https://doi.org/10.1002/smj.525
115.
WestphalJ. D.DeephouseD. L. (2011). Avoiding bad press: Interpersonal influence in relations between CEOs and journalists and the consequences for press reporting about firms and their leadership. Organization Science, 22(4), 1061-1086. https://doi.org/10.1287/orsc.1100.0563
116.
WestphalJ. D.KhannaP. (2003). Keeping directors in line: Social distancing as a control mechanism in the corporate elite. Administrative Science Quarterly, 48(3), 361-398. https://doi.org/10.2307/3556678
117.
WestphalJ. D.MiltonL. P. (2000). How experience and network ties affect the influence of demographic minorities on corporate boards. Administrative Science Quarterly, 45(2), 366-398. https://doi.org/10.2307/2667075
118.
WestphalJ. D.ParkS. H.McDonaldM. L.HaywardM. L. (2012). Helping other CEOs avoid bad press: Social exchange and impression management support among CEOs in communications with journalists. Administrative Science Quarterly, 57(2), 217-268. https://doi.org/10.1177/0001839212453267
119.
WestphalJ. D.ShaniG. (2016). Psyched-up to suck-up: Self-regulated cognition, interpersonal influence, and recommendations for board appointments in the corporate elite. Academy of Management Journal, 59(2), 479-509. https://doi.org/10.5465/amj.2014.0010
120.
WestphalJ. D.SternI. (2006). The other pathway to the boardroom: Interpersonal influence behavior as a substitute for elite credentials and majority status in obtaining board appointments. Administrative Science Quarterly, 51(2), 169-204. https://doi.org/10.2189/asqu.51.2.169
121.
WestphalJ. D.SternI. (2007). Flattery will get you everywhere (especially if you are a male Caucasian): How ingratiation, boardroom behavior, and demographic minority status affect additional board appointments at US companies. Academy of Management Journal, 50(2), 267-288. https://doi.org/10.5465/amj.2007.24634434
122.
WestphalJ. D.ZajacE. J. (1995). Who shall govern? CEO/board power, demographic similarity, and new director selection. Administrative Science Quarterly, 40(1), 60. https://doi.org/10.2307/2393700
123.
WestphalJ. D.ZajacE. J. (2013). A behavioral theory of corporate governance: Explicating the mechanisms of socially situated and socially constituted agency. Academy of Management Annals, 7(1), 607-661. https://doi.org/10.5465/19416520.2013.783669
124.
WilliamsM. (2001). In whom we trust: Group membership as an affective context for trust development. Academy of Management Review, 26(3), 377-396. https://doi.org/10.2307/259183
125.
WisemanR. M.Gomez-MejiaL. R. (1998). A behavioral agency model of managerial risk taking. Academy of Management Review, 23(1), 133-153. https://doi.org/10.2307/259103
126.
ZandD. E. (1972). Trust and managerial problem solving. Administrative Science Quarterly, 17(2), 229-239. https://doi.org/10.2307/2393957
