Do Boards Have Style? Evidence from Director Style Divergence and Board Turnover

A board of directors performs essential strategic and oversight roles that maximize the value of the shareholders’ residual claim. However, despite careful selection of board members, too often boards neither reach their full potential nor perform their necessary governance obligations. The role of structural characteristics such as firm size and composition have been thoroughly explored. However, evidence tying traditional board variables to board and firm performance remains contradictory or incomplete. As a result, there has been an increasing interest in the role of behavioral and cognitive traits to explain how organizations work. Beginning with the seminal work of Bertrand and … Read more

The Role of the Chief Legal Officer in Corporate Governance

Corporate governance mitigates agency costs by protecting outside investors from exploitation from insiders, as well as aligning the financial and other incentives of insiders with those of the principal. The literature remains underdeveloped, however, on those tasked with shaping and enforcing internal corporate governance. These executives, known as gatekeepers, serve as reputational intermediaries who verify and certify information to the market. The most prominent gatekeeper in the firm is the Chief Legal Officer (CLO). The CLO is responsible for monitoring for firm misconduct, supervising internal and external legal resources, and advising the CEO and the board of directors on matters … Read more

Do Managers Seek Control and Entrenchment?

Do managers seek control of the firm, or the level of ownership consistent with entrenchment? Entrenched managers own shares within a range which is high enough to give them control, but sufficiently low to make other shareholders bear the brunt of their non-value maximizing actions. There is a large literature on how entrenched managers can benefit themselves by extracting wealth from other shareholders, but conclusive evidence that managers seek entrenchment is currently lacking.

One way to proceed is to try to infer the optimal ownership structure from the managers’ perspective from revealed preferences in existing ownership structure. Prior literature finds … Read more