Board Changes and the Director Labor Market: The Case of Mergers

Boards of directors perform the critical tasks of monitoring and advising management and it is logical to suspect that the necessary skills vary with the nature of a particular firm.  That is, a board should be chosen with consideration of the needs associated with advising and monitoring a particular business.  So what happens to boards after a merger?  After all, mergers change the nature of a firm, sometimes in dramatic ways.  Do boards change as well?  

In a recently revised working paper, David Becher, Jared Wilson and I examine this question. However, to ascertain whether board changes around mergers are significantly different from the status quo, we needed a benchmark of normal board changes.  To our surprise, there was little information available in the literature.  Consequently, our work provides evidence on changes around mergers but also provides a benchmark for normal non-merger changes.  

The abstract is below:

Board Changes and the Director Labor Market: The Case of Mergers

David Becher, Ralph Walkling and Jared Wilson

Abstract:      

We examine the stability and composition of acquirer boards around mergers, contrasting changes with the same firms in non-merger years and a sample of non-merging firms. Contrary to perceived wisdom, the post-merger board changes substantially and variation is significantly different from both non-merger years and non-merging firms. Adjustments reflect firms upgrading skills associated with executive and deal experience and bargaining between targets and acquirers rather than agency motives. Conversely, director selection in non-merger years is driven by general skills and diversity. Our analyses provide insight into the dynamic nature of board structure and characteristics valued in the director labor market.

The complete paper may be downloaded here.

All the best,

Ralph