Board Busyness Research Articles

Independent Directors and Risk Taking: Evidence from Listed US Insurance Companies

This study examines the relation of independent directors and their gender diversity, busyness, and experience with risk taking for 112 listed US insurance companies over 2003-2010. Using OLS, system GMM and 3SLS, we find that board independence, females amongst independent directors and busy boards are positively related to risk taking. While board tenure is not related to risk taking, experienced boards are found to be positively related to risk taking. Our study contributes by extending the board structure literature to show that the composition of independent board members matters for monitoring. Female independent directors, rather than simply female directors, improve board monitoring but that more than two does not. A higher percentage of non-busy directors may also mitigate the adverse effect of busy directors. Furthermore, experience gained through serving on the board improves monitoring.

Are busy boards detrimental?

Busy directors have been widely criticized as being ineffective. However, we hypothesize that busy directors offer advantages for many firms. While busy directors may be less effective monitors, their experience and contacts arguably make them excellent advisors. Among IPO firms, which have minimal experience with public markets and likely rely heavily on their directors for advising, we find busy boards to be common and to contribute positively to firm value. Moreover, these positive effects of busy boards extend to all but the most established firms. Benefits are lowest among Forbes 500 firms, which likely require more monitoring than advising.

Board Structure and the Performance of Australian Listed Investment Companies

This study examines the relationship between board structure and performance of Australian listed investment companies (LICs hereafter). With lower fees and simplified taxation over other managed funds, LICs provide a useful investment vehicle. LICs differ from other companies as their customers and investors are the same and fund management functions are often outsourced. LIC boards, in turn, are tasked with monitoring duties and determining service fees for fund managers. Agency problems are likely as fund managers’ desire larger fees (and fund size) whereas LIC shareholders seek higher return. Whilst the nature of agency issues therefore differs from ordinary companies, the prior Australian LIC literature is limited. We document a significant relationship between director tenure and LIC performance. Specifically, we find director tenure to be negatively associated with LIC performance. Board busyness and independence increases LIC expense ratios whilst board size is negatively associated with market to book value.

Comparative Analysis of the Reliability and Validity Coefficients of WAEC, NECO and NABTEB Constructed Mathematics Examination

This study compared the reliability and validity co-efficient of mathematics examinations constructed by the West Africa Examination Council (WAEC), National Examinations Council (NECO), and National Business and Technical Examination Board (NABTEB), as a way to ascertain the extent in which these examination are comparable and met the required standard of a well standardized test in terms of reliability and validity.All the final year students of all Secondary School Students and Technical College Students in Nigeria constituted the population for the study. A total of 720 students were used as sample out of which 120 students were used for Test-retest method and the rest 600 students for other methods of estimating reliability and validity coefficients. The researcher adopted past WAEC, NECO and NABTEB mathematics questions as instruments for the study.Two hypotheses were raised, one on reliability and the other on validity and the two hypotheses were tested at 0.05 level of significance using Z-test, Fisher’s Transformation and Hotelling Williams Test. The results of the findings showed that WAEC, NECO and NABTEB mathematics achievement Examinations are highly reliable and valid. It also showed that the Examination bodies are comparable and equivalent. DOI: 10.5901/jesr.2013.v3n2p397

Are Multiple Directorships Beneficial in East Asia?

AbstractWe posit that the benefits and costs of multiple directorships are conditional on firm characteristics. We find firm valuation is positively associated with multiple directorships in (i) firms with high advising needs and (ii) firms with high external financing needs. These beneficial effects of multiple directorships are generally stronger in countries with weak shareholder rights and in firms that are widely held. However, when controlling shareholder hold high voting‐rights to cash‐flow rights, multiple directorships reduce firm valuation, especially in countries with weak shareholder rights and in closely held firms. As multiple directorships increases, cash holdings (capital expenditures) contribute less to shareholder value. The negative association between value of cash (capital expenditure) and busy boards is mitigated in firms with (i) high advising needs, (ii) high external financing needs and (iii) less entrenched ownership structures.

Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking

Firms routinely justify CEO compensation by benchmarking against companies with highly paid CEOs. We examine whether the 2006 regulatory requirement of disclosing compensation peers mitigated firms' opportunistic peer selection activities. We find that strategic peer benchmarking did not disappear after enhanced disclosure. In fact, it intensified at firms with low institutional ownership, low director ownership, low CEO ownership, busy boards, large boards, and non-intensive monitoring boards, and at firms with shareholders complaining about compensation practices. The effect is also stronger at firms with new CEOs. These findings call into question whether disclosure regulation can remedy potential problems in compensation practices.

The Risks of Ignoring Strategic Insolvency

A moment has arrived when a great power with global responsibilities is having a crisis of confidence. Its economy has grown sluggish and it is being overtaken by a number of rising competitors. Financial pressures loom, notably the ability to keep a balance between government revenues and expenses. It is losing long-standing superioritiespsychological as well as technological and numericalin key categories of military power; this great power, whose diplomats and military leaders manage active or potential conflicts from Afghanistan to Europe with treaty alliances as far flung as Japan and Australia, confronts the need for constraints on its global ambitions and posture. This urgent reckoning has been prompted in part by a painful and largely unnecessary counterinsurgency war far from home that cost many times more than initially thought and exhausted the country's overstretched land forces.

Corporate Governance Mechanisms and Firm Performance: A Study of Select Indian Firms

Numerous studies have analyzed the relationship between corporate governance and firm performance but those have primarily been in the context of western countries. Early studies linking corporate governance and firm performance explore the impact of various aspects of corporate governance such as composition and size of boards, frequency of board meetings (board activity), number of directorships (board busyness), CEO-Chair duality, and ownership structure on firm performance. In this paper, we examine the relationship between four corporate governance variables (a) composition of board, (b) size of board, (c) board activity, and (d) CEO-Chair duality and firm performance using Economic Value Added (EVA) as the primary performance measurement metric.

Going overboard? On busy directors and firm value

The literature disagrees on the link between so-called busy boards (where many independent directors hold multiple board seats) and firm performance. Some argue that busyness certifies a director’s ability and that such directors are value enhancing. Others argue that “over-boarded” directors are ineffective and detract from firm value. We find evidence that (1) the disparate results in prior work stem from differences in both sample composition and empirical design, (2) on balance the results suggest a negative association between board busyness and firm performance, and (3) the inclusion of firm fixed effects dramatically affects the conclusions drawn from, and the explanatory power of, multivariate analyses. We also explore alternative empirical definitions of what constitutes a busy director and find that commonly used proxies for busyness perform well relative to more complex alternatives.

Anglo-American versus Asian Corporate Governance Environments

Anglo-American versus Asian Corporate Governance Environments

Directors with a full plate: the impact of busy directors on bank risk

PurposeThis paper aims to analyze the impact of busy directors on bank risk. Busy directors are directors with multiple directorships and other corporate responsibilities.Design/methodology/approachFirst, univariate analysis is performed to see whether there are differences in governance structures of banks with busy boards and those with less‐busy boards of directors. Second, multivariate regression analysis is used with two measures of bank risk as the dependent variable to see whether busy directors impact bank risk, while controlling for other factors that may influence risk.FindingsThe paper finds that there are significant differences between banks in terms of governance structure when analyzing banks with busy boards and banks with less‐busy boards. Importantly, the study shows that bank risk is positively related to multiple board appointments of bank directors.Research limitations/implicationsThese results provide support for the “busyness hypothesis” as opposed to the “reputation hypothesis” and add to the understanding of whether busy directors hurt or help boards.Practical implicationsResults are important for regulators who seek to maintain a safe and sound banking system. Regulators can gain a better understanding of how much time and effort individual directors can contribute to a bank under examination.Originality/valueThis is the first study in the banking literature on multiple board appointments. It also uses a unique approach to test whether director busyness is a determinant of bank risk.

Are Busy Directors Good for Business

This paper draws on the top 100 firms in Australia, sampled every three years from 1990 through to 2008, to analyse the impact of busy directors on large Australian companies. Information on directors, CEO and Chairperson along with shareholder information is hand collected from the annual reports of largest 100 companies. We focus on director and CEO outside engagements using a count of outsider directorships, outside CEO positions, outside chairperson positions and industry/professional memberships rather than just focusing on a count of outside directorships. Using fixed effects panel data analysis we find that firm performance is decreasing in size and leverage over the study period. Board busyness is found to be increasing in firm size and leverage and decreasing in CEO tenure relative to chairperson tenure. CEO busyness is found to be increasing in size, chair busyness and CEO tenure relative to chair tenure and decreasing in CEO duality and CEO tenure relative to chairperson tenure. An important contribution to the literature is the finding of variation in the results for outside engagements in private firms compared with outside engagements in public firms. We also note important differences in the determinants of CEO busyness relative to the determinants of board busyness.

Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking

Firms routinely justify CEO compensation by benchmarking against companies with highly paid CEOs. We examine whether the 2006 regulatory requirement of disclosing compensation peers mitigated firms’ opportunistic peer selection activities. We find that strategic peer benchmarking did not disappear after enhanced disclosure. In fact, it intensified at firms with low institutional ownership, low director ownership, low CEO ownership, busy boards, large boards, and non-intensive monitoring boards, and at firms with shareholders complaining about compensation practices. The effect is also stronger at firms with new CEOs. These findings call into question whether disclosure regulation can remedy potential problems in compensation practices.

Going Overboard? On Busy Directors and Firm Value

There is disagreement in the literature regarding the link between so-called busy boards (where many independent directors hold multiple board seats) and firm performance. Some argue that busyness certifies a director’s ability and that such directors are value enhancing. Others argue that “over-boarded” directors are ineffective and detract from firm value. Our analysis suggests that 1) the disparate results in prior work stem from differences in both sample composition and empirical design, 2) our results are supportive of prior work suggesting a negative association between board busyness and firm performance, and 3) the inclusion of firm fixed effects dramatically affects the conclusions drawn from, and the explanatory power of, multivariate analyses. We also explore alternative empirical definitions of what constitutes a busy director and find that commonly used proxies for busyness perform well relative to more complex alternatives.

Board Task‐related Faultlines and Firm Performance: A Decade of Evidence

ABSTRACTManuscript Type: EmpiricalResearch Question/Issue: To what extent can group faultlines and their potential value‐destroying effects be detected on corporate boards? Task‐related attributes of the type of directorship, education, board tenure, and financial background of board members are considered as directors' characteristics that give rise to the faultline phenomenon. The impact of task‐related faultlines on firm performance as well as the moderating effects of busy boards, Chief Executive Officer (CEO) tenure, executive directors' (EDs) compensation structure, and the average non‐executive directors' (NEDs) involvement in board committees are examined.Research Findings/Insights: Using a panel of FTSE 350 companies from 1999 to 2008, we find a strong negative effect of task‐related faultlines on firm performance. Further exploration of the moderating effects demonstrates that the condition of a busy board and CEO tenure exacerbate the negative effects of faultlines. At the same time, the executive pay contingency is found to have a remedying effect on boardroom cohesiveness, whereas the involvement of NEDs in board committee work is not likely to make the adverse effects of board faultlines less pronounced.Theoretical/Academic Implications: Based on the arguments of social identity theory, this study shows that task‐related faultlines on corporate boards have strong negative value‐creating implications. The positive moderating impact of the executive compensation structure renders support to agency theory predictions about executive incentive alignment. This work also underlines the usefulness of the concept of faultlines in the corporate governance literature, because unitary boards, where NEDs and EDs share board responsibility, exhibit pre‐existing factions, similar to top management teams of family‐controlled firms and teams managing international joint‐ventures.Practitioner/Policy Implications: This research points to the importance of a careful selection process of directors by nomination committees. It also underlines the role for active leadership on boards, who should be aware of available strategies to ameliorate the negative consequences of board schisms, such as accentuating superordinate board identity and/ or informal meetings.

About the Authors

About the Authors

Corporate governance and capital allocations of diversified firms

We examine how various aspects of corporate governance structures affect the capital allocation inefficiency that drives the value discounts of diversified firms. Diversified firms with more effective internal or external governance mechanisms experience more efficient investment allocations at both the firm and segment levels and show less of a diversification discount. The efficiency of the investment allocation process is better for diversified firms with high board independence, low board busyness, high institutional ownership, high outside director ownership, high CEO equity-based pay, high audit quality, and strong shareholder rights. The results hold after controlling for other potential influences. Our evidence suggests that corporate governance considerations are important in assessing the relation between investment efficiency and firm value for diversified firms.

Automatic fuzzy decision making system with learning for competing and connected businesses

We study uncertainties surrounding competition on business networks and board games. We investigate these uncertainties using concepts of fuzzy logic and game theory. We investigate how the payoff of the players is affected by a number of factors. These include the level of connectivity or number of links, the number of competitors, possible constraints on the networks and on the boards, as well as choice of strategy adopted by competitors. We introduce one fuzzy player in the game. This player uses fuzzy rules to make strategic decisions. We introduce learning to train and analyze how the fuzzy player adapts over time during the game.

Us knows us in the UK: On director networks and CEO compensation

We analyze the relation between CEO compensation and networks of executive and non-executive directors for all listed UK companies over the period 1996–2007. We examine whether networks are built for reasons of information gathering or for the accumulation of managerial influence. Both indirect networks (enabling directors to collect information) and direct networks (leading to more managerial influence) enable the CEO to obtain higher compensation. Direct networks can harm the efficiency of the remuneration contracting in the sense that the performance sensitivity of compensation is then lower. We find that in companies with strong networks and hence busy boards the directors' monitoring effectiveness is reduced which leads to higher and less performance-sensitive CEO compensation. Our results suggest that it is important to have the ‘right’ type of network: some networks enable a firm to access valuable information whereas others can lead to strong managerial influence that may come at the detriment of the firm and its shareholders. We confirm that there are marked conflicts of interest when a CEO increases his influence by being a member of board committees (such as the remuneration committee) as we observe that his or her compensation is then significantly higher. We also find that hiring remuneration consultants with sizeable client networks also leads to higher CEO compensation especially for larger firms.

Governance: Role Of Boards In Women Owned Businesses

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">According to Astrachan, et al.<span style="mso-spacerun: yes;">  </span>(2003), family businesses “generate no less than 64 percent of USA gross domestic product, and … employ a whopping 62 percent of the nation’s work force.” While the economic impact is evident, the state of governance may not be so apparent. In light of this information, two questions bearing examination are: (1) Is governance a critical issue for family owned businesses; (2) If so, how may these firms address these questions? Researchers at the University of Wisconsin, Oshkosh developed and administered a survey to collect data about family business boards. A companion study, with its focus on women business owners, was conducted by Meredith College researchers. This paper compares and reports the results.</span></span></p>