Co-opted Directors and Board Effectiveness: The Impact of Director Gender

Abstract

Independent directors are viewed as critical to effective corporate governance. However Coles et al. (2014) introduce the concept of a “co-opted” director, one appointed after the firm’s CEO took office. They argue that, although technically independent, co-opted directors’ interests are more aligned with the CEO who was instrumental in their selection than with shareholders. However, research has shown that woman directors are more conscientious about their board duties than are men. This study investigates whether director gender mitigates the impact of co-option on board effectiveness, as measured by the frequency of board meetings. The results indicate that an increase in the proportion of co-opted male directors on a board is associated with a less effective board. However, no such relation is found for co-opted female directors. Despite incentives to act otherwise, boards with higher percentages of co-opted women directors appear to continue to fulfill their duties to shareholders.