Taking a Seat at the Table: Director Experience and Share Ownership in Fortune 500 Boardrooms
Emilie Feldman and Cynthia Montgomery investigate how the presence of Fortune 500 board members who have connections to a company’s history influences the performance of that firm. In comparison to other members of corporate boards, these directors are likely to hold substantial ownership stakes in the companies they represent, given their historical connections to these firms. However, they are also likely to systematically lack business expertise relative to their counterparts, since their historical connections allow them to attain board seats without needing to meet the typical quality standards of corporate directors. As such, it is possible to identify historically-connected directors in an arms-length and unbiased manner by examining their ownership and employment characteristics, and then to quantify the impact their presence on a corporate board has on that firm’s performance. Preliminary results indicate that directors who hold large ownership stakes but systematically lack business experience relative to their peers are negatively associated with the market performance of the companies they represent. The intended contribution of this research is to improve our understanding of the functioning of boards of directors of major American companies by identifying directors who are likely to have a significant influence on corporate performance, yet whose presence has not been considered to this point.
Agency Problems in Divested Business Units: Evidence from the Boards of Directors of Spinoff Firms
Emilie Feldman investigates how the governance of companies created in corporate spinoffs can be a source of agency problems for these firms. Defining “dual directors” as board members of divesting parent companies who simultaneously take directorships on the boards of their spinoff firms, she has generated three primary findings to date. First, dual directors are significantly more likely to serve on the boards of spinoff firms when the pre-spinoff governance and performance of their divesting parent companies is weak. Second, spinoff firm performance declines with each additional dual director that serves on these companies’ boards, and it improves when dual directors leave the boards of either the spinoff or parent firms. Third, dual directors appear to have a weaker incentive to maximize value for the firms they represent than do their peers on spinoff firm boards, potentially leading them to extract value from these companies. Further research seeks to investigate the implications dual directors have for the performance of the divesting parent companies, with the aim of explicating whether and how corporate governance can be a heritable characteristic and how traditional notions of director independence may be misleading.
Minority Shareholder Protections
Mauro Guillen is documenting the causes and the consequences of recent changes in corporate legislation around the world which protect the interests of minority shareholders. He is collecting information on more than 50 countries, and ascertaining the extent to which normative, coercive and mimetic forces is shaping the cross-national adoption of minority shareholder protections, with a view to understanding its consequences for the functioning of financial markets, mergers & acquisitions, and the occurrence of financial crises.