Functional Stupidity in the Boardroom

Abstract

This study provides a better understanding of the dynamics of knowledge and expertise in the context of public companies’ compensation committees (CCs), through a focus on CC members’ cognitive limitations. Drawing on semi-structured interviews, we mobilize the concepts of reflexive thinking and functional stupidity (Alvesson and Spicer 2012) to document and analyze CC members’ difficulties and/or unwillingness “to use cognitive and reflective capacities in anything other than narrow and circumspect ways” (Alvesson and Spicer, 2012: 1201). Overall, our findings indicate that CC members, although being firmly committed to knowledge development and problem solving, are disinclined to mobilize three key aspects of cognitive capacity (i.e., reflexivity, meaningful justification and substantive reasoning) in the design of remuneration policies. Our study also shows that these cognitive limitations are fuelled by a multidimensional exercise of power, which we conceive of as a form of “stupidity management” (Alvesson and Spicer 2012). The latter aims to limit CC members’ meaningful communicative action by constraining disruptive thinking and preventing critical issues from impacting committees’ agenda and deliberations – all of this in the name of aspirational yet superficial forms of decision-making leadership in the boardroom. Our analysis also highlights the central role of compensation consultants as “stupidity managers”, involved in the orchestration of the constraining of committee members’ mind. Significant implications of these findings for research and policy-making are discussed.