The First Outside Director

11 Pages Posted: 4 May 2020

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business; European Corporate Governance Institute (ECGI); Stanford University - Arthur & Toni Rembe Rock Center for Corporate Governance

Brian Tayan

Stanford University - Graduate School of Business

Date Written: April 21, 2020

Abstract

Little is known about the process by which pre-IPO companies select independent, outside board members—directors unaffiliated with the company or its investors. Private companies are not required to disclose their selection criteria or process, and are not required to satisfy the regulatory requirements for board members set out by public listing exchanges. In this Closer Look, we look at when, why, and how private companies add their first independent, outside director to the board.
We ask:
• Why do pre-IPO companies rely on very different criteria and processes to recruit outside directors than public companies do?
• What does this teach us about governance quality?
• How important are industry knowledge and managerial experience to board oversight?
• How important are independence and monitoring?
• Does a tradeoff exist between engagement and fit on the one hand and independence on the other?

Keywords: Board of directors, board quality, directors, first director, first outside director, pre-IPO companies, startups, governance, director recruitment, director qualifications, entrepreneurship, growing companies, scaling companies, advising companies, oversight, corporate governance research

JEL Classification: G3, G30

Suggested Citation

Larcker, David F. and Tayan, Brian, The First Outside Director (April 21, 2020). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-83, Available at SSRN: https://ssrn.com/abstract=3590799

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Stanford University - Arthur & Toni Rembe Rock Center for Corporate Governance ( email )

Crown Quadrangle 559 Nathan Ab
Stanford, CA 94305-8610
United States

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
175
Abstract Views
1,017
rank
212,823
PlumX Metrics