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Conservative CEOs Pursue Riskier International Deals Than Liberals Do

Amy Meeker

February 4, 2024


Though evidence suggests that conservatives are generally more risk-averse than liberals are, the reverse is true when it comes to foreign expansion. A recent study showed that conservatives leaned toward overseas acquisitions, which are more perilous than alliances (an approach liberals favored).

Aaron Hill of the University of Florida and colleagues studied 1,027 decisions to enter foreign markets made by Fortune 500 CEOs over the past decade and examined the executives’ political-campaign contributions to determine their leanings. They found that conservative leaders were more likely to acquire companies than to form alliances, while for liberal leaders it was just the reverse. The conclusion: Conservative CEOs pursue riskier international deals than liberals do.

Professor Hill, defend your research.

Hill: Evidence suggests that conservatives are generally more risk-averse than liberals are. But that’s not a universal pattern. Research in political psychology has shown that the propensity for risk-taking is domain-specific. In some situations conservative-leaning people are less risk-averse than their liberal counterparts; sometimes they’re actually risk-seeking. That usually happens in contexts where risk-taking leads to greater control over future decisions—something conservatives prize. For example, a number of studies have found that when it comes to investing in business ownership, conservatives take bigger risks than liberals do. Ownership offers them greater control over their livelihood, and that outweighs their characteristic fear of loss.

Entering a foreign market is risky to begin with, and acquisitions tend to be more perilous than alliances. They involve a larger, often irreversible financial commitment, and there’s no guarantee the expertise you’ve bought will stay. An alliance gives you the help of a partner who’s established in and knowledgeable about the region, and it’s less costly and easier to undo. But balancing the extra risk of an acquisition is the fact that it gives you full control. There’s no partner you have to listen to, and you don’t have to share the profits. We thought that because of this, we’d find conservatives’ appetite for risk to be greater than liberals’ with foreign expansion—and it was.

HBR: How large was the difference?

On average, moderately conservative CEOs were about twice as likely as moderately liberal CEOs to choose an acquisition over an alliance, and moderately liberal CEOs were twice as likely as moderately conservative CEOs to choose an alliance. When we looked at strongly conservative and strongly liberal CEOs, the difference was more pronounced: The first group was more than four times as likely as the second to pursue acquisitions over alliances.

How did you measure political ideology?

All donations of more than $200 must be reported to the U.S. Federal Election Commission and become part of the public record. We looked at four factors among the 193 CEOs in our sample: the number of donations to both Democrats and Republicans, the amounts given to members of each party, the number of years donations were made to each party, and the number of Democratic and Republican candidates supported. We averaged the four measures to come up with a composite score for each executive.

There’s been a lot of research into how personal traits affect CEOs’ decisions. Did you take those into account?

We couldn’t factor in personality traits because we had no way to collect data on them. We did control for things like age, tenure, international experience, and prior political activism. We also controlled for numerous firm-level factors, such as size, financial performance, R&D and advertising intensity, diversification, and previous international deals, along with industry-level factors. And we considered how CEOs’ pay was structured. The more long-term performance incentives executives had, the smaller the effect political identity had on their international strategies, because leaders were especially motivated to maximize their company’s future value.

What about boards of directors?

We looked at a few board-level factors. The first was the share of independent directors. They’re usually less inclined than other directors to reflexively go along with the CEO’s wishes. Indeed, we found that board independence mitigated the extent to which a CEO’s political ideology affected the choice of foreign expansion strategies. Consider a CEO who scores one standard deviation above the mean on liberalism. Moving from a low to a high degree of board independence would reduce the likelihood of that leader’s choosing an alliance by about 7%.

We also looked at the shareholdings of independent directors, hypothesizing that the more stock they owned, the more likely they’d be to fulfill their fiduciary duties, limiting the effect of CEOs’ leanings. That turned out to be the case. When a CEO who scored one standard deviation above the mean on liberalism had independent directors with significant holdings in the firm, the odds that he or she would choose an alliance over an acquisition dropped by about 30%.

The final board-level factor we examined was whether the CEO was also the board chair. We reasoned that executives who headed their boards would have greater control than others over what information directors received, what was discussed at meetings, and so on, and that this would facilitate any biases or predispositions of the CEO. But in fact it made no difference.

You studied CEOs of U.S. firms. Would you expect similar results for the heads of companies elsewhere?

We probably wouldn’t see the same level of effects. Many countries have stronger corporate-governance laws than the United States does. For instance, many EU members and some Asian countries prefer or require a two-tiered board structure. The management board oversees routine managerial tasks and transactions and is itself overseen by the supervisory board, which handles long-term strategic planning and decision-making, is typically composed of experts with no other ties to the company, and can’t include the CEO. That tends to dilute the effects of the CEO’s biases and preferences. I’d also expect weaker effects if we studied Japanese CEOs, given that that culture tends to be collectivist and consensus-driven.

What advice do you have for companies?

First, don’t overgeneralize or pigeonhole people. Be cognizant of your CEO’s values and also of the context; biases and tendencies may play out differently in different situations. A conservative person doesn’t always do the conservative thing, and a liberal person doesn’t always do the liberal thing; sometimes the pattern flips. Second, make sure you have good governance, and be aware of how much any one individual may be influencing the firm’s decisions.

Any advice for CEOs?

The message I hope leaders will take away from this isn’t don’t be conservative or don’t be liberal. Rather, it’s to recognize your biases and understand how they might affect your decisions and lead you down some undesirable paths. A bit of honest self-reflection is always helpful.

Copyright 2024 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.

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Amy Meeker

Amy Meeker is a senior editor at Harvard Business Review.

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