Electing Directors

The board of directors is crucial to the successful governance of the modern corporation.  Directors hire and fire the CEO, monitor performance and compliance with regulations and provide crucial advice on strategic matters.  And, of course, related to this blog, the board also approves or disapproves mergers.  Until recently, however, we didn't know much about director elections.  Jay Cai, Jacqueline Garner and I studied over 2500 director elections to remedy that situation.  The abstract of the article is below.  

Electing Directors

Published in the Journal of Finance

Abstract:     

Using a large sample of director elections, we document that shareholder votes are  significantly related to firm performance, governance, director performance, and voting  mechanisms. However, most variables, except meeting attendance and ISS  recommendation, have little economic impact on shareholder votes. Even poorly  performing directors and firms typically receive over 90% of votes cast. Nevertheless,  fewer votes lead to lower 'abnormal' CEO compensation and a higher probability of  removing poison pills, classified boards, and CEOs. Meanwhile, director votes have little  impact on election outcomes, firm performance, or director reputation. These results  provide important benchmarks for the current debate about election reforms.   

The complete article, which was published in the Journal of Finance can be downloaded here.

All the best,

Ralph