Board sub-committee effectiveness, director attraction and director attrition: Do nomination and remuneration committees matter?

Abstract

This study examines whether the effectiveness of board subcommittees is associated with director attrition and the attraction of new directors to boards. Using a sample of firms listed on the Australian Securities Exchange, we find that nomination and remuneration committee effectiveness is inversely associated with director attrition and positively related to new external directors joining boards. The results suggest the contribution of these subcommittees to improve corporate governance by strengthening the board's human capital through recruitment and retention of suitable talent. Furthermore, the influence of subcommittee effectiveness on attrition (attraction) is more pronounced in firms experiencing higher levels of information asymmetry, weaker governance quality and poorer performance. The results are robust to tests with alternative variables, entropy balanced matching, and additional controls. Overall, our findings show that improved governance through effective subcommittees helps maintain and enhance the human capital of boards.