Corporate governance and knowledge management: how board independence may increase CEO paranoia and lead to increased top management team homophily

This study suggests that board changes aimed at bolstering the monitoring role of governance may inadvertently undermine a firm's knowledge management capabilities through increases in Top Management Team (TMT) homophily. We theorise how changes in board composition that increase the board's social independence from CEOs affect TMT member selection through symptoms of CEO non-clinical paranoia about their relations with the board. Our theory is tested with data from an original survey of CEOs and outside directors from 263 large- and medium-sized US global corporations, together with archival data on board composition and management characteristics. We submit that CEOs manifesting non-clinical paranoia are more likely to appoint executives like themselves to the top team; and these new executives also have fewer ties to the board. Results suggest that social psychological cognitions among corporate leaders may lead to TMT homophily – that is, less diversity in TMTs, including diversity of social network ties.