Board political ideological diversity and information exposure as antecedents to value creation and value appropriation

Abstract Strategic emphasis is a critical decision reflecting a firm's relative proclivity toward value creation versus value appropriation. Despite the increasing role of the board in setting the strategic priorities of firms, there is a dearth of research examining board‐level influences on strategic emphasis. Drawing on the cognitive perspective of corporate governance, we posit that exposure to external information via board interlocks provides competing incentives to pursue value creation and value appropriation strategies. We hypothesize that political ideological diversity among directors facilitates the utilization of external information for novel purposes, thus increasing firms' value creation focus. Combining data on directors' political ideologies with network analysis, we test these hypotheses in 584 large U.S. firms between 2000 and 2018. We find that political ideological diversity influences strategic emphasis both directly and in interaction with board interlock network centrality: politically ideological diverse boards exhibit a greater focus on value creation, and this effect is strengthened when the board is well connected to others. These results have implications for the director selection process, and for executives advocating for value creation strategies and the requisite R&D investments under differing conditions of board composition and information exposure.