Ineffective corporate governance: Director busyness and board committee memberships

Characteristics of Members of Board Committees at Borsa Istanbul

“…As presented in Table 2, audit committee members, on average, serve on 2.49 boards, whereas the other directors serve on 3.83 boards, which is significantly higher. This figure supports the argument by Jiraporn et al (2009) that directors serving on many boards could have time constraints and might not have the time to attend the meetings of committees. Thus, they are not appointed to committees.…”

“…Gillan et al (2003) show that among S&P 1500 companies in US, 57 % of the firms have nominating committees, with 71 % of the members being independent, and 23 % of them have separate corporate governance committees. In addition, once again, the expertise of the members of these boards would be expected to be an important factor, as well as their busyness and board appointments in other companies, due to time constraints to attend all meetings of committees (Jiraporn et al, 2009). …”

The king reports, independent non-executive directors and firm valuation on the Johannesburg stock exchange

“…First, they bring independent judgment to board decisions (Baysinger and Hoskisson, 1990;Ntim, 2009), which can impact positively on firm valuation. In particular, greater independence associated with INEDs grants them increased capacity to advise, monitor and discipline management to improve firm value by reducing managerial opportunism without fear or favour (Vafeas and Theodorou, 1998;Bhagat and Black, 2002;Jiraporn et al, 2009). …”

“…Weir and Laing (2000) contend that INEDs often command less knowledge about the business and find it too difficult to understand the complexities of the company. This problem is exacerbated by the fact that INEDs are usually part-timers who normally also sit on boards of other companies (Bozec, 2005;Jiraporn et al, 2009), which leaves them with too little time to devote to their advisory, monitoring and disciplining duties (Lipton and Lorsch, 1992;Weir et al, 2002). By contrast, high levels of executive directorships are associated with high access to information that leads to high quality decision-making (Zahra and Stanton, 1988;Weir et al, 2002;Nicholson and Kiel, 2003), with positive consequences firm valuation.…”

“…Firstly, there is the issue of clearly defining who constitutes an INED, with most past studies simply classifying all outside directors as non-executive directors (NEDs) (Hermalin and Weisbach, 1991;Weir and Laing, 2000). However, some outside directors may have significant interests or connections with corporate executives (Zahra and Stanton, 1988;Bozec, 2005;Gupta and Fields, 2009), which can impair their independence, and thereby their ability to effectively advise, monitor and discipline management (Vafeas and Theodorou, 1998;Jiraporn et al, 2009). This suggests that a much subtle and stricter definition of who is an INED has to be introduced if her/his independence and monitoring capacity is not to be compromised.…”