Deadlock on the Board

59 Pages Posted: 7 Dec 2017 Last revised: 2 Aug 2019

See all articles by Jason Donaldson

Jason Donaldson

Washington University in St. Louis

Nadya Malenko

Boston College, Carroll School of Management, Students; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Giorgia Piacentino

Columbia University

Multiple version iconThere are 3 versions of this paper

Date Written: July 31, 2019

Abstract

We develop a dynamic model of board decision-making. We show that a board could retain a policy all directors agree is worse than an available alternative. Thus, directors may retain a CEO they agree is bad — a deadlocked board leads to an entrenched CEO. We explore how to compose boards and appoint directors to mitigate deadlock. We find that board diversity and long director tenure can exacerbate deadlock. Moreover, we rationalize why CEOs and incumbent directors have power to appoint new directors: to avoid deadlock. Our model speaks to short-termism, staggered boards, and proxy access.

Keywords: board of directors, dynamic decision-making, deadlock, entrenchment, director elections, CEO turnover, diversity, tenure, staggered boards

JEL Classification: D71, D72, D74, G34

Suggested Citation

Donaldson, Jason and Malenko, Nadya and Piacentino, Giorgia, Deadlock on the Board (July 31, 2019). Available at SSRN: https://ssrn.com/abstract=3081638 or http://dx.doi.org/10.2139/ssrn.3081638

Jason Donaldson

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Nadya Malenko (Contact Author)

Boston College, Carroll School of Management, Students ( email )

Boston, MA
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Giorgia Piacentino

Columbia University ( email )

New York

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