Understanding the Motives for Director Selection

72 Pages Posted: 3 Jul 2015 Last revised: 1 Aug 2019

See all articles by David Becher

David Becher

Drexel University

Ralph A. Walkling

Drexel University - Lebow College of Business

Jared I. Wilson

Indiana University - Kelley School of Business

Date Written: July 1, 2019

Abstract

Director selection is crucial in corporate governance, but little is known about the relative importance of individual director attributes in the selection process. We examine the motives for director selection using the empirical setting of mergers, which offers a well-defined pool of candidates considered and a discrete shock to a board’s monitoring and advising needs. We find that boards increase director expertise tied to these changing needs, even in cases with powerful CEOs that could opportunistically weaken board monitoring. Individual candidates with expertise related to changing board needs are significantly more likely to be selected for the post-merger board. In contrast, directors are appointed from outside of the well-defined labor pool when they possess more related expertise than candidates from the merging firms. Our evidence suggests that directors are selected to meet changing monitoring and advising needs.

Keywords: Director selection; Boards of directors; Director labor market

JEL Classification: G34

Suggested Citation

Becher, David and Walkling, Ralph August and Wilson, Jared I., Understanding the Motives for Director Selection (July 1, 2019). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 498/2017. Available at SSRN: https://ssrn.com/abstract=2625798 or http://dx.doi.org/10.2139/ssrn.2625798

David Becher (Contact Author)

Drexel University ( email )

3220 Market Street
1127 Gerri C LeBow Hall
Philadelphia, PA 19104
United States
215-895-2274 (Phone)
215-895-2295 (Fax)

Ralph August Walkling

Drexel University - Lebow College of Business ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)

Jared I. Wilson

Indiana University - Kelley School of Business ( email )

Kelley School of Business
801 W. Michigan Street
Indianapolis, IN 46202
United States
317-278-4715 (Phone)

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