Strong Managers, Weak Boards?

Posted: 8 Dec 2009

See all articles by Renee B. Adams

Renee B. Adams

University of Oxford; ABFER

Daniel Ferreira

London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper


Many governance reform proposals are based on the view that boards have been too friendly to executives, for example, by awarding them excessive pay. Although boards are often on friendly terms with executives, it is less clear that they have systematically failed to function in the interests of shareholders. Understanding board monitoring requires a theory of boards that takes into account how firms provide incentives for their Chief Executive Officer's (CEOs) through other means. We develop a model in which a CEO's ownership stake and private benefits have opposite effects on his willingness to share private information with an independent board of directors. To encourage the CEO to communicate, the board may optimally commit to a low monitoring intensity when either CEO ownership is low or private benefits are high. Our model suggests that the existing cross-section evidence on the correlation between board composition and CEO ownership and tenure needs re-evaluation. Using a new proxy for board monitoring, we provide new evidence that this cross-sectional correlation appears to be non-monotonic, with board independence first decreasing and then increasing in CEO ownership and tenure. We discuss the implications of our model for the design and evaluation of governance structures.

Keywords: board composition, corporate governance, board monitoring, private benefits, ownership structure

JEL Classification: G34, L22, J41, J44

Suggested Citation

Adams, Renée B. and Ferreira, Daniel, Strong Managers, Weak Boards?. CESifo Economic Studies, Vol. 55, Issue 3-4, pp. 482-514, 2009, Available at SSRN: or

Renée B. Adams (Contact Author)

University of Oxford ( email )

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Daniel Ferreira

London School of Economics - Department of Finance ( email )

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European Corporate Governance Institute (ECGI)

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Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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