CEO Involvement in the Selection of New Board Members: An Empirical Analysis

CEO Involvement in the Selection of New Board Members: An Empirical Analysis

May 1998 | Anil Shivdasani, David Yermack
This paper examines the impact of CEO involvement in the selection of new board members on the nature of appointments. The authors find that when CEOs are involved in director selection, firms appoint fewer independent outside directors and more gray outsiders with conflicts of interest. Stock price reactions to independent director appointments are significantly lower when the CEO is involved, and independent appointees are more likely to serve on multiple other boards, a practice that is disfavored by investor activists. The study suggests that CEO involvement may be a mechanism used to reduce pressure from active monitoring. The authors also note a recent trend of companies removing CEOs from involvement in director selection. The paper uses data from the 1995 Fortune 500 and analyzes director appointments over a three-year period (1994-1996). It controls for various factors such as firm size, performance, and CEO characteristics to ensure robust results. The findings highlight the importance of CEO influence in board composition and its implications for corporate governance.This paper examines the impact of CEO involvement in the selection of new board members on the nature of appointments. The authors find that when CEOs are involved in director selection, firms appoint fewer independent outside directors and more gray outsiders with conflicts of interest. Stock price reactions to independent director appointments are significantly lower when the CEO is involved, and independent appointees are more likely to serve on multiple other boards, a practice that is disfavored by investor activists. The study suggests that CEO involvement may be a mechanism used to reduce pressure from active monitoring. The authors also note a recent trend of companies removing CEOs from involvement in director selection. The paper uses data from the 1995 Fortune 500 and analyzes director appointments over a three-year period (1994-1996). It controls for various factors such as firm size, performance, and CEO characteristics to ensure robust results. The findings highlight the importance of CEO influence in board composition and its implications for corporate governance.
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Understanding CEO Involvement in the Selection of New Board Members%3A An Empirical Analysis