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Abstract
Whether to retain or dismiss a CEO is among a board's most consequential decisions. Research grounded in the logic of consequences holds that boards base this decision primarily on performance feedback. Drawing on the logic of appropriateness, we argue that boards also evaluate how CEOs respond to that feedback. CEOs whose responses deviate from those of peers facing similar performance situations are more likely to be dismissed, because such deviance erodes perceived CEO competence and heightens directors' sense of accountability. Boards rely more heavily on this appropriateness logic when performance feedback is inconsistent, and thus less reliable, and when directors have deep industry experience that supplies shared templates for judging responses. Deviance is less likely to trigger dismissal, however, when boards can attribute it to the CEO's domain expertise or to a consistent history of similar behavior, allowing them to interpret it as informed judgment rather than error. Longitudinal data on U.S. public firms support these arguments. Our study extends the behavioral theory of the firm from how responses to performance feedback are generated to how they are evaluated, situates corporate governance within a dual-logics framework, and identifies deviant responses to performance feedback as an antecedent of CEO dismissal.
