The Board Committee Chair Effect: How Much Does It Contribute to Firm Performance?

Abstract

Boards of directors rely on committees to perform important specialized monitoring and advising tasks. While there is general consensus that committees and their chairs influence board outcomes and, thus, firm performance, we know little about the magnitude of these effects. Using variance decomposition, we show that audit, compensation, and nominating committee chairs explain a significant portion of variance in firm performance that prior research might have inaccurately attributed to other levels. Results show that committee chairs have much stronger influence on firm performance than board chairs, illustrating a need for more research on the critical role committee chairs play in the functioning of committees, boards, and firms. Furthermore, drawing on managerial discretion research, we find evidence that the committee chair effect on performance is stronger in low discretion industries than in high discretion industries.