Co-opted Boards

Forthcoming, Review of Financial Studies

65 Pages Posted: 29 Oct 2010 Last revised: 22 Apr 2014

See all articles by Jeffrey L. Coles

Jeffrey L. Coles

University of Utah - Department of Finance; Arizona State University (ASU) - Finance Department

Naveen D. Daniel

Drexel University - Department of Finance

Lalitha Naveen

Temple University

Date Written: September 10, 2013


We argue that not all independent directors are equally effective in monitoring top management. Specifically, directors who are appointed by the CEO are likely to have stronger allegiance to the CEO and will be weaker monitors. To examine this hypothesis, we propose and empirically deploy two new measures of board composition. Co-option is the fraction of the board comprised of directors appointed after the sitting CEO assumed office. Consistent with Co-option serving to measure board capture, as Co-option increases board monitoring intensity decreases: turnover-performance sensitivity diminishes; pay level increases but without a commensurate increase in pay-performance sensitivity; and investment in hard assets increases. Further analysis suggests that even independent directors who are co-opted are less effective monitors. Non-Co-opted Independence –– the fraction of the board comprised of independent directors who were already on the board before the CEO assumed office –– has more explanatory power for monitoring effectiveness than the traditional measure of board independence.

Keywords: Corporate Governance, Board Co-Option, CEO Entrenchment, Board Composition

JEL Classification: G32, G34, K22

Suggested Citation

Coles, Jeffrey L. and Daniel, Naveen D. and Naveen, Lalitha, Co-opted Boards (September 10, 2013). Forthcoming, Review of Financial Studies. Available at SSRN: or

Jeffrey L. Coles (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-587-9093 (Phone)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-4475 (Phone)
480-965-8539 (Fax)

Naveen D. Daniel

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-5858 (Phone)
215-895-2955 (Fax)


Lalitha Naveen

Temple University ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-6435 (Phone)

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