Managerial Influencing of Boards of Directors
39 Pages Posted: 11 Jul 2007 Last revised: 26 Jan 2018
Date Written: June 7, 2009
In this paper, I examine issues relating to managers' ability to influence their performance evaluation. In contrast to conventional wisdom, I show that such influencing is not necessarily deleterious to shareholder welfare, despite the fact that it is aimed at maximizing the managers' compensation. In particular, I show that the managers' influencing actions can, under some conditions, improve the performance evaluation process. This mitigates the control problem between the boards of directors and managers and lowers managerial compensation costs. I also show that the managers' influencing actions can alleviate the need for costly board equity awards -- to align board interests with those of the shareholders. This suggests that boards with smaller equity stakes may not necessarily have weaker incentives to monitor managers.
Keywords: Board of directors, corporate governance, influencing, monitoring
JEL Classification: D80, G34, M40, M41, M46, J33
Suggested Citation: Suggested Citation