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CEO Involvement in the Selection of New Board Members: An Empirical Analysis

New York University, Center for Law and Business, Working Paper No. 98-015

43 Pages Posted: 10 Jul 1999  

David Yermack

New York University (NYU) - Stern School of Business

Anil Shivdasani

University of North Carolina Kenan-Flagler Business School

Date Written: February 1998

Abstract

We study whether CEO involvement in the selection of new directors influences the quality 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, and independent appointees are more likely to serve on large numbers of other boards, a practice disfavored by investor activists. 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.

JEL Classification: G34

Suggested Citation

Yermack, David and Shivdasani, Anil, CEO Involvement in the Selection of New Board Members: An Empirical Analysis (February 1998). New York University, Center for Law and Business, Working Paper No. 98-015. Available at SSRN: https://ssrn.com/abstract=169528 or http://dx.doi.org/10.2139/ssrn.169528

David Yermack

New York University (NYU) - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~dyermack

Anil Shivdasani (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3182 (Phone)
919-962-2068 (Fax)

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