Lead Independent Directors: Good Governance or Window Dressing?

Abstract

We document the emergence of the lead independent director (LID) role in a sample of U.S. firms in 1999-2009. We find that firms with an LID are valued higher, provide stronger risk taking incentives for CEOs, and are more likely to terminate poorly performing CEOs. We also find that CEOs of firms with an LID receive lower excess cash compensation. These results hold after applying various econometric techniques such as instrumental variables analysis, firm fixed effects and first differences regressions. Taken as a whole, the results suggest that LIDs enhance corporate governance.