Are Dissenting Directors Rewarded?

Marshall, Cassandra D.

doi:10.2139/ssrn.1668642

Cited by 23 publications

(12 citation statements)

References 12 publications

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“…In line with the view that a shareholder-friendly reputation is rewarded, several papers find that directors are held accountable for failing to monitor management. 29 Conversely, in line with the view that a management-friendly reputation is rewarded, Helland (2006) finds that directors of firms charged with fraud observe an increase in the number of outside directorships, and Marshall (2011) shows that directors who resign from the board over a disagreement experience a loss in board seats over the five-year period following the dispute. 30 Our paper also emphasizes that the aggregate quality of corporate governance is the primary determinant of which type of reputation is rewarded more in the labor market.…”

Section: Empirical Predictionsmentioning

confidence: 95%

“…On the one hand, papers such as Coles and Hoi (2003) and Fich and Shivdasani (2007) find that directors who demonstrate shareholderfriendly behavior and monitor management are more likely to gain additional directorships. On the other hand, papers such as Helland (2006) and Marshall (2011) find that shareholder-friendly actions hurt directors' chances of being invited to other boards. Zajac and Westphal (1996), Eminet and Guedri (2010), and Bouwman (2011) find evidence consistent with the existence of conflicting reputational concerns: firms controlled by shareholders (managers) are more likely to invite directors who have demonstrated shareholder-friendliness (management-friendliness) in their previous board positions.…”

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confidence: 99%

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The Labor Market for Directors and Externalities in Corporate Governance

Levit¹,

Malenko

2016

The Journal of Finance

138

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This paper studies how directors' reputational concerns affect board structure, corporate governance, and firm value. In our setting, directors affect their firms' governance, and governance in turn affects firms' demand for new directors. Whether the labor market rewards a shareholder‐friendly or management‐friendly reputation is determined in equilibrium and depends on aggregate governance. We show that directors' desire to be invited to other boards creates strategic complementarity of corporate governance across firms. Directors' reputational concerns amplify the governance system: strong systems become stronger and weak systems become weaker. We derive implications for multiple directorships, board size, transparency, and board independence.

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Section: Empirical Predictionsmentioning

confidence: 95%

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confidence: 99%

The Labor Market for Directors and Externalities in Corporate Governance

Levit¹,

Malenko

2016

The Journal of Finance

138

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“…The reputation a director establishes is valuable to that director (e.g., see Hermalin and Weisbach, 2003;Marshall, 2010). A careful analysis of reputation 6 While some researchers documented a positive effect of outside directors on firm performance (e.g., see Rosenstein and Wyatt, 1990;Core et al, 1999), other studies found that the contribution of outside directors to firm performance is insignificant (e.g., see MacAvoy et al, 1983;Black, 1998, 2001;Hermalin and Weisbach, 1991;Klein, 1998) or even negative (e.g., Agrawal and Knoeber, 1996).…”

Section: Directors' Incentivesmentioning

confidence: 99%

Directors, Directors and Officers Insurance and Corporate Governance

2010

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This article models a board of directors consisting of either pure directors or shareholder directors. Pure directors only receive a fee for their service to the board, while shareholder directors receive corporate equity in addition to the fee. The analysis shows that: (1) compensation-maximizing pure directors and shareholder directors are unlikely to act in the best interests of shareholders; (2) if the appointment of directors is controlled by the CEO, directors choose to concur with the CEO's decisions unless they can form a majority to control the vote; (3) when a board is dominated by shareholder directors who only have equity stakes in the firm, the board will advise the CEO to maximize shareholder value. We also show that it is optimal for directors to be fully insured against the liability risk for endorsing CEO's suboptimal decisions. If a firm does not offer D&O coverage, directors will pay for the insurance themselves or decline the directorship. The corporate purchase of D&O insurance, therefore, does not change directors' monitoring actions but does influence their decisions to accept the position. These results have important implications for board composition, director appointment, and the design of director compensation.

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“…The literature examining the market for directors has proliferated. In particular, researchers focus on whether board appointments are associated with the effectiveness of directors' monitoring of the management or with directors' friendliness toward the management (e.g., Bouwman, ; Coles & Hoi, ; Eminet & Guedri, ; Ertimur, Ferri, & Stubben, ; Harford, ; Helland, ; Lel & Miller, ; Levit & Malenko, ; Marshall, ; Zajac & Westphal, ). Using the US setting during the period 1996–2006, our paper aims to shed light on an important issue that is overlooked by previous studies, that is, how the market for independent directors responds to increasingly stringent regulations and enhanced public scrutiny.…”

Section: Introductionmentioning

confidence: 99%

The market for independent directors

Chen

Moers

2018

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: Using the US setting from 1996 to 2006, we examine how the market for independent directors responds to increasingly stringent scrutiny.Research Findings/Insights: Despite the unambiguous increase in the demand for independent directors (with financial expertise) since 2000, independent directors (with financial expertise) have not expanded their board seats but reduced them.Incumbents are more likely to depart from firms that are costly to advise and monitor, but only post-2000. Meanwhile, we document an influx of new directors to the labor market. These new directors are more likely to be hired by firms that are costly to advise and monitor post-2000 and are more likely to be financial experts so that the increased demand can be satisfied.Theoretical/Academic Implications: We provide evidence that the demand-supply framework adequately captures the market for independent directors. In particular, rather than the demand effect simply dominating the supply effect for a particular group of directors, the demand is fulfilled by opposing supply effects of different types of directors, specifically incumbents versus new entrants. Practitioner/Policy Implications: Policy makers should not underestimate the (dis)incentives that directors have to provide services to the market when initiating future governance reforms (e.g. writing the limit on the number of directorships held by directors into best practice/law). Firms, especially ones that are costly for directors to advise and monitor, are encouraged to explore effective ways to retain valuable directors and prepare thorough succession plans whenever the supply of directors is expected to shrink.

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Are Dissenting Directors Rewarded?

Cited by 23 publications

References 12 publications

The Labor Market for Directors and Externalities in Corporate Governance

The Labor Market for Directors and Externalities in Corporate Governance

Directors, Directors and Officers Insurance and Corporate Governance

The market for independent directors

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