CEO Involvement in the Selection of New Board Members: An Empirical Analysis
Anil Shivdasani,David Yermack +1 more
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This article found that stock price reactions to independent director appointments are significantly lower when the CEO is involved in the selection of new directors compared to when no CEO involvement is required, and they found that companies remove CEOs from involvement in board selection.Abstract:
We study whether CEO involvement in the selection of new directors influences the nature of appointments to the board. When the CEO serves on the nominating committee or no nominating committee exists, 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 in director selection. Our evidence may illuminate a mechanism used by CEOs to reduce pressure from active monitoring, and we find a recent trend of companies removing CEOs from involvement in director selection.read more
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