Co-Opted Directors and Powerful CEOs: Evidence from the CEO Pay Slice (CPS)

13 Pages Posted: 20 May 2016

See all articles by Pradit Withisuphakorn

Pradit Withisuphakorn

National Institute of Development Administration (NIDA)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Date Written: May 18, 2016

Abstract

We explore the effect of co-opted directors on CEO power. Co-opted directors are those appointed after the incumbent CEO assumes office and are found by prior research to represent a weakened governance mechanism. Our evidence reveals that co-opted directors lead to less powerful CEOs, consistent with the substitution effect. Because co-opted directors impose less stringent oversight, the CEO is able to exercise a great deal of latitude in running the firm. Therefore, it is less necessary for the CEO to command so much power where more directors are co-opted, hence leading to less powerful CEOs. In other words, co-opted directors substitute for strong CEO power. Crucially, we find that board co-option exhibits much more explanatory power than does board independence, which has been the primary measure of board effectiveness in the literature.

Keywords: co-opted directors, co-option, CEO power, powerful CEOs, corporate governance

JEL Classification: G30, G34

Suggested Citation

Withisuphakorn, Pradit and Jiraporn, Pornsit, Co-Opted Directors and Powerful CEOs: Evidence from the CEO Pay Slice (CPS) (May 18, 2016). Available at SSRN: https://ssrn.com/abstract=2781532 or http://dx.doi.org/10.2139/ssrn.2781532

Pradit Withisuphakorn

National Institute of Development Administration (NIDA) ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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