Too Legit to Quit? How Shareholder Activism Differentially Affects Outside Directors

The present study theoretically and empirically analyzes how shareholder activism, as a reputation-damaging event for outside directors on those firms’ boards, subsequently affects the attractiveness of those directors in the market for directors. We devote particular attention to predicting specific heterogeneity in the labor market’s response by considering the differential value of some directors as legitimacy conferrers. Specifically, we suggest that both elite-status and minority (i.e., female and/or ethnic minority) outside directors are particularly valued for their contributions to organizational legitimacy and will experience a degree of reputational immunity following a reputation-damaging event. We test and find support for our hypotheses using a sample of shareholder activism that occurred in the U.S. between 2012 and 2016, and employing propensity score matching combined with the difference-in-differences approach. We discuss the implications of our findings as they relate to the research on corporate directors, organizational legitimacy, and labor markets."