When a board is smaller, a company has a higher valuation, its CEO’s pay is more sensitive to performance, and its CEO is more likely to depart after poor performance
There is no universally optimal board structure – one size doesn’t fit all
Larger boards can be associated with higher company valuation – if the firm is complex (i.e. is diversified, large, and relies on debt financing) and the board size arises from a greater number of independent directors
Inside directors can be associated with higher company valuation – if the firm is R&D-intensive, then firm-specific knowledge is more important
When a board is busy (most outside directors have at least three directorships), a company has a lower valuation and is less profitable, and a CEO is less likely to depart after poor performance
Independent directors are only valuable if they are not busy
When a busy director departs, a company’s stock price goes up. If a director of firm A takes a board appointment at another firm B, firm A’s stock price falls
Studies “co-opted” directors, who were appointed after the CEO assumed office The idea is that they are beholden to the CEO for their appointment and thus less likely to monitor him/her
When a board has more co-opted directors, a CEO is less likely to depart after poor performance. The CEO’s pay is higher, but not more sensitive to performance
The fraction of “independent and non-co-opted” directors is a better measure of board independence than the fraction of independent directors
Studies the 2003 Norwegian law that required boards to have a minimum of 40% of female directors
The law caused stock prices to fall immediately and long-term valuations to decline. It also led to experienced boards, higher leverage, more acquisitions, and lower profitability
To show causation rather than just correlation, the results compare “treated” firms (that had no female directors before the law, and so were more affected by it) to “control” firms (who already had female directors)
- Highlights the basic flaws in frequently-quoted evidence that diversity improves firm performance, but argues that diversity is desirable even if without such evidence
- There’s causal evidence that employee directors lead to worker jobs being protected in a downturn and worker wages falling to compensate for this insurance
- Despite lower wages, there is no effect on firm performance
- The mixed evidence suggests that the value of workers on boards is situation-specific – they are neither universally harmful nor universally beneficial
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