We study the effects of the intensity of board monitoring on directors’ effectiveness in performing their monitoring and advising duties. We find that monitoring quality improves when a majority of independent directors serve on at heidrick private equity compensation report pdf two of the three principal monitoring committees. These firms exhibit greater sensitivity of CEO turnover to firm performance, lower excess executive compensation, and reduced earnings management.
The improvement in monitoring quality comes at the significant cost of weaker strategic advising and greater managerial myopia. Firms with boards that monitor intensely exhibit worse acquisition performance and diminished corporate innovation. Firm value results suggest that the negative advising effects outweigh the benefits of improved monitoring, especially when acquisitions or corporate innovation are significant value drivers or the firm’s operations are complex. Check if you have access through your login credentials or your institution. Killing the Goose that Lays the Golden Egg? The Costs of Overburdened Independent Directors. Shareholder activists and regulators are pressuring U.
CEO and Chairman of the Board. They argue that separating the titles will reduce agency costs in corporations and improve performance. The existing empirical evidence appears to support this view. We argue that this separation has potential costs, as well as potential benefits. In contrast to most of the previous empirical work, our evidence suggests that the costs of separation are larger than the benefits for most large firms. We thank Dave Chapman, Jeri Coles, Dave Denis, Mason Gerety, Gordon Hanka, Mike Hertzel, Ken Lehn, John Martin, Harold Mulherin, Bob Parrino, Dennis Sheehan, Cliff Smith, Rick Smith, Laura Starks, Karl von der Heyden, Karen Van Nuys, Mike Weisbach, Mare Zenner, Jerry Zimmerman, an anonymous referee, and seminar participants at Arizona, Arizona State, North Carolina, Northern Arizona, Penn State, Rochester, Texas, Virginia Tech and the January 1994 AFA Meeting for helpful comments.