Board Interlocks and Outside Directors’ Protection

38 Pages Posted: 21 Jun 2013 Last revised: 10 Feb 2018

Michal Barzuza

University of Virginia School of Law

Quinn Curtis

University of Virginia School of Law

Date Written: October 1, 2013

Abstract

We examine the role of outside directors’ interlocks, in restoring directors’ indemnification protection in response to the Delaware case Schoon v. Troy Corp. The case, which permitted a board to alter indemnification and advancement of expenses arrangements for a former director retroactively, left directors vulnerable unless their firm acted to restore protection. Using a hand-collected data set, we find that firms became more than two times as likely to adopt enhanced indemnification protection once a firm with which they share an outside director adopted protection. Our results suggest that interlocks contribute to outside directors’ knowledge and bargaining power within the boardroom. Consistent with the bargaining power hypothesis we find that other measures of outside directors’ power: (i) a large proportion of outside directors; (ii) a designated independent lead director, and, with marginal significance, (iii) more board meetings in executive session. These results have legal and practical implications for corporate governance.

Keywords: Outside Directors, Interlock, Indemnification, Advancement

JEL Classification: G38, K22

Suggested Citation

Barzuza, Michal and Curtis, Quinn, Board Interlocks and Outside Directors’ Protection (October 1, 2013). Journal of Legal Studies, 2017; Virginia Law and Economics Research Paper No. 2013-11. Available at SSRN: https://ssrn.com/abstract=2282142 or http://dx.doi.org/10.2139/ssrn.2282142

Michal Barzuza (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Quinn Curtis

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

HOME PAGE: http://www.law.virginia.edu/lawweb/faculty.nsf/FHPbI/2298852

Register to save articles to
your library

Register

Paper statistics

Downloads
483
rank
53,064
Abstract Views
3,188
PlumX