CEO politics may shape how companies compete

Whether to cut prices, launch a product, open a new facility or make an acquisition are among the decisions companies consider in the pursuit of a competitive edge. New research from Texas A&M University suggests a CEO’s political affiliation may be associated with whether their overall strategy follows industry peers or charts a different course.

In a study published in the Academy of Management Journal, researchers Krishnan Nair and Eric Y. Lee, assistant professors in the Department of Management at Mays Business School, found that companies led by Republican CEOs generally pursued competitive strategies that more closely resembled those of their industry peers, while Democratic-led firms tended to conform less.

But those tendencies weren’t fixed. The political makeup of an industry’s CEOs also mattered, suggesting that both political ideology and political identity may help explain how CEOs approach competitive strategy.

What does it mean for a company to conform?

The researchers examined the mix of actions companies take to compete. Those actions included acquisitions, alliances, new market entries, new products, price cuts, legal actions, facility openings and marketing activities.

To measure conformity, Nair and Lee compared each company’s overall mix of competitive actions with those of its industry peers.

In practical terms, it comes down to whether a company follows its competitors’ lead or takes a different path.

“Are you imitating more of what your competitors are doing, or are you bucking the trend and doing something different?” Lee said.

Tracking corporate strategy and CEO politics

To study those relationships, Nair and Lee analyzed data from S&P 500 firms between 2010 and 2019. They determined CEOs’ political affiliation using publicly disclosed political contributions to Democratic and Republican candidates and party committees, and used RavenPack, which tracks companies’ competitive activities reported in the media, to track the firms’ competitive actions.

Overall, Republican CEOs conformed about 18% more than Democratic CEOs when it comes to the competitive actions they pursued. The influence of industry composition was also substantial: Republican CEOs conformed more in industries with relatively fewer Democratic CEOs, while Democratic CEOs conformed more as the concentration of Democratic CEOs increased.

That finding is important because previous research on CEO politics has largely focused on ideology. Nair and Lee’s study considers both ideology and political identity as possible explanations for how CEOs approach competitive strategy.

“When it comes to ideology, it’s really this idea that we have these stable values and they influence our behavior,” Nair said. “An identity-based perspective suggests that’s something that can change depending on what your political tribe believes or is advocating at a given point in time.”

And that influence doesn’t have to be deliberate.

“They don’t necessarily have to be thinking about it consciously,” Nair said. “It’s more like, ‘This is someone who’s like me,’ and that’s unconsciously influenced by a lot of things.”

The link to company performance

The study also found that the relationship between conformity and company performance differed by CEO political affiliation.

Republican-led companies tended to perform better when their strategies were more conforming, while Democratic-led companies tended to perform better when their strategies were less conforming. The relationship held across measures of both short- and long-term financial performance.

Nair and Lee interpret the findings through a concept known as self-concordance — the idea that people may be more motivated and committed when pursuing goals and actions that align with their underlying preferences.

“If a CEO is doing something just because there might be some short-term gains, but this is not something they feel comfortable doing, the CEO might not be fully committed to it or fully motivated,” Nair said. “On the converse side, when they are motivated to do something, even if it might not be something that in the short term makes the most sense, because they’re motivated and dedicated, they’re more likely to pull it off.”

For boards, Lee said the findings could point to the value of giving CEOs some latitude to pursue strategies that fit how they naturally approach competition, while still maintaining their oversight role.

“It’s a delicate balance,” Lee said. “Boards are not supposed to just let CEOs and executives do whatever they want, but in this case, giving them autonomy to do what they feel they naturally gravitate toward and being supportive of that may be beneficial for the firm’s ultimate performance.”

More broadly, Nair said the findings show why political identity should be considered alongside political values when examining how executives make decisions.

“In terms of competitive strategy, you would think that one’s political affiliation wouldn’t necessarily shape behavior directly. But there’s a lot of work already showing that values do matter,” Nair said. “Here, we find that that political identity matters, too — including the political identities of those around you.”