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
Date Written: February 1998
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: Suggested Citation