Outside Directors on Corporate Boards: Background and Behavior
KDI FOCUS October 23, 2015
12 Pages Posted: 22 Apr 2016
Date Written: October 23, 2015
The substantial influence of CEOs diminishes the oversight function of the board of directors. Many outside directors have social ties with CEOs and their behavioral patterns are inconsistent with those of vigilant monitors. Dissents are rare, and those who do dissent are highly likely to be replaced. Further, the director ratio tends to be lower when more supervisory items are on the board agenda. In order for the outside director system to operate properly, the voting rights of minority shareholders should be respected, outside directors and agenda selection must remain independent from CEOs, and objective evaluation and disclosure of outside directors’ board activities must ensue.
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