| Title | In Defense of Boards |
|---|---|
| Author | Visser, B. (Bauke); Dominguez Martinez, S. (Silvia); Swank, O.H. (Otto) |
| Date | 2007-01-01 |
| Language | English |
| Type | working paper |
| Publisher | Tinbergen Institute |
| Abstract | It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behaviour and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers etc. We analyse the nature of (implicit) retention contracts boards use to discipline and screen executives. Consistent with empirical observation, we nd that executives may become overly active to show their credentials; that the link between bad performance and dismissal is weak; and that boards occasionally dismiss competent executives.It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behaviour and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers etc. We analyse the nature of (implicit) retention contracts boards use to discipline and screen executives. Consistent with empirical observation, we nd that executives may become overly active to show their credentials; that the link between bad performance and dismissal is weak; and that boards occasionally dismiss competent executives. |
| Publication | http://hdl.handle.net/1765/11751 |
| Persistent Identifier | urn:NBN:nl:ui:15-1765/11751 |
| Metadata | XML |
| Repository | Erasmus University Rotterdam |
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