Board Chair Positions Research Articles

CEO power and risk taking: evidence from European banks mergers and acquisitions

PurposeThis study investigates the relationship between CEO power and the risk profile (RP) of acquiring banks through mergers and acquisitions (M&A) transactions.Design/methodology/approachThe analysis is based on 214 transactions between 2010 and 2022 involving European Union-based acquirers. To assess the impact of M&A on the acquiring bank’s RP, we compare changes in the acquirer’s RP to control banks. We use linear regression with two-stage least squares instrumental variables (2SLS-IV) to examine the effect of CEO power on changes in merger-related risk.FindingsThe findings suggest that CEO power reduces the RP of the acquiring bank. Specifically, CEOs who hold both the CEO and board chair positions tend to take fewer risks. Additionally, CEOs with high ownership, CEO pay and extensive experience (measured by tenure and acquisition experience) decrease the RP. However, prestige power is positively correlated with an increase in RPs.Practical implicationsThis research examines CEO influence on bank risk post-mergers, providing insights into governance, risk and strategic choices. The findings can guide banks in CEO selection and governance to mitigate M&A risks, improving risk management and decision-making in the financial sector.Originality/valueThis study is the first empirical investigation introducing diverse executive power metrics to analyze the link between executive power and risk-taking in the European banking sector, with a specific emphasis on the impact on M&A as critical investment choices.

Is One Head Better Than Two? Dual Leadership and Firm Performance During the COVID‐19 Crisis

We provide novel evidence on the value of combined CEO and board chair positions (CEO duality) for firms during the COVID‐19 pandemic in 2020. Based on 4,840 firm‐quarter observations from 1,210 unique firms in the US, we show that CEO duality firms outperformed non‐duality firms by a 0.58% margin in quarterly return on assets in 2020, which is equivalent to an incremental annual net profit of US$164 million. A difference‐in‐difference estimation confirms that the benefit of CEO duality is observed only in the COVID‐19 crisis period. Our main finding is robust to potential endogeneity concerns and alternative performance measures. Additional analyses show that the positive impact of CEO duality stems from the mechanisms of operating cost savings and working capital optimization during the crisis. Our finding underscores the benefit of CEO duality when economic uncertainty is high and a speedy decision is important.

Lead Independent Director: Impact on Firm Performance and Financial Misstatements

This paper examines whether the presence of a lead independent director improves firm performance and reduces financial misstatements. Using a sample of Fortune 1000 companies in the year 2013, we find that the effect of lead independent directors on firm performance hinges on CEO –Chair duality. For companies with CEO-Chair duality, the existence of a lead independent director is positively associated with improved firm performance as measured by Tobin’s Q. In contrast, we do not find a similar association for companies separating the CEO and board chair positions. In addition, we do not find an association between the existence of a lead independent director and the likelihood of misstatements. These results suggest that the existence of a lead independent director helps improve a company’s corporate governance.

CEO as board chair in listed family firms: A test of the performance effects during an economic crisis

AbstractFamily firms often opt for a combined CEO and board chair positions, yet the implications of such leadership structure on firm performance remain a subject of scholarly debate. We introduce the socioemotional wealth (SEW) perspective as a unifying framework that bridges the divergent views of stewardship and agency theories. We argue that the effects of CEO duality on performance are contingent upon the balance between extended and restricted SEW priorities. Drawing on a sample of listed companies on the Milan Stock Exchange between 2003 and 2015, our empirical analysis reveals that listed family firms derive greater benefits from CEO duality compared to their non‐family counterparts. Moreover, our findings demonstrate that such leadership structure renders the highest performance benefits in listed family firms when the CEO–chair is not a family member, particularly during periods of economic crisis.

The influence of learning and bargaining on CEO–chair duality: Evidence from firms that pass the baton

AbstractSome firms combine CEO and board chair positions after observing CEO performance. We propose that this approach, known as “passing the baton” (PTB), enables the board to learn about the ability and suitability of the CEO before awarding additional title of board chair. Consistent with learning, idiosyncratic stock‐return volatility declines following the CEO–chair combination. The market responds positively (Cumulative Abnormal Return (CAR) = 1.31%) to early promotions, suggesting that early promotions reveal directors’ private information about CEO quality. Compared to a matched benchmark, we observe no decline in firm's accounting performance in subsequent years. Although match‐adjusted stock returns begin to decline 2 years after combination in homogeneous industries, there is no stock‐return decline in heterogeneous industries where learning is more important. The evidence reveals the potential for entrenchment over time, but we find no evidence to suggest that CEO–chair combinations in PTB firms result from agency problems. Our results underscore the importance of balancing both learning and agency problems in corporate governance.

Revisiting the relationship between board practices and firm performance

This paper examines whether and how firm performance is influenced by board practices in Ghana. The analysis shows that chief executive officer (CEO) duality has a negative impact on firm performance, evidence that supports agency theory’s position. Further analysis shows that the smaller Ghanaian board size appears to be optimal because it has a positive impact on firm performance. However, the larger non-executive director representation on the board has no impact on firm performance. Overall, these results suggest that the Ghanaian firms should be encouraged to separate the role of CEO and the board chair positions, have a board size of between eight and nine, and make good use of non-executive directors’ time in the board decision process if they are to achieve better performance.

Board Gender Composition and the United Way

The U.S. nonprofit workforce is female dominated, yet its board composition and leadership still skew male. This paper argues that behind the institutionalism driving these decisions lie gender status beliefs based in Status Characteristic Theory. These beliefs influence our expectations of performance for men and women in leadership positions and set the “logics of appropriateness” for board selection. Using a panel dataset of approximately 350 United Ways, primarily from the Midwest and South, I use pooled OLS to analyze community characteristics that influence our expectations of women’s performance and may predict their presence of United Way boards of directors and in board chair positions. Findings indicate that the size of the business community, the population of a community, and historical trends in performance are all significantly and negatively related to the proportion of women on United Way boards. These, as well as rurality, impact the likelihood of having a female board chair. Expectations of women associated with these social characteristics are explored.

Do board chairs matter? The influence of board chairs on firm performance

Research summary: We use a variance decomposition methodology to assess the degree to which board chairs may influence their companies' performance. To isolate the board chair effect, we focus on firms in which the CEO and board chair positions are separated. Using a U.S. sample of 6,290 firm‐year observations representing 1,828 board chairs in 308 different industries, our results indicate that the board chair effect is substantial at about nine percent. Drawing on resource dependency theory, we also theorize and show how this board chair effect is contingent on the task environment in which firms operate. Our results add to the literature examining the role and influence of board chairs and the context in which chairs may have a greater impact on performance.Managerial summary: Following institutional and regulatory changes, more firms are separating the CEO and board chair positions. With an increasing number of individuals separate from the CEO serving as board chairs, a critical question becomes: What influence do these separate board chairs have on firm performance? Prior research suggests that separate board chairs can provide important resources—including advice and counsel, legitimacy, information linkages, and preferential access to external commitments and support—to their CEOs, other top managers, and overall firms. In turn, who the board chair is and the individual's ability (or lack thereof) to provide these resources may have a significant impact on firm performance. Offering support for this perspective, we find that separate board chairs explain nine percent of the variance in firm performance. Copyright © 2016 John Wiley & Sons, Ltd.

Being the CEO's boss: An examination of board chair orientations

Research summary: Scholars have traditionally conceptualized board leadership as a dichotomous construct. A combined CEO and board chair position is interpreted as reflecting a more collaborative approach to corporate governance, whereas separate positions are interpreted as ensuring greater board control. I challenge this conceptualization and posit that a separate board chair can be oriented toward collaboration as well as—or in place of—control. I analyze newly available data from corporate proxy statements to identify these two board chair orientations and test competing perspectives on how they impact profitability growth in a sample of S&P 500 firms. The results indicate that board leadership is a more nuanced phenomenon than the extant literature would suggest.Managerial summary: What is the role of the board chair when not the CEO? Corporate governance experts assert the board chair's role is to monitor and control the CEO. Yet, board chairs often play another, more collaborative role. Board chairs frequently provide advice and guidance to CEOs and relieve CEOs of board leadership burdens, enabling the CEOs to focus on their primary responsibilities. In this study, I examine the effect of board chair orientations on financial performance and find that, as with separating or joining the CEO and board chair positions, the profitability implications of the selected orientation are far from universal. Board chairs must consider their firm's performance context in order to get the most out of a particular approach to being the CEO's boss. Copyright © 2016 John Wiley & Sons, Ltd.

That special someone: When the board views its chair as a resource

Research summary: Many boards view their chairs as valuable resources. We predict that whether a board adopts such a view depends on the board chair's human and social capital. Data from S&P 500 firms suggest that while a board chair's human capital increases the probability that the board views him or her as a resource, social capital has no overall effect. In a post-hoc investigation, however, we find the board chair's independence to be an important boundary condition for the effect of social capital. With this exploratory research, we aim to spur research devoted specifically to board chairs. Such research will become increasingly important over time as firms continue to separate their CEO and board chair positions. Managerial summary: The purpose of this research was to determine the factors that lead a board of directors to view its chair as a valuable resource. We expected that board chairs with high human and social capital would be more likely to be viewed as a resource by their colleagues. Surprisingly, only human capital exhibited such an effect overall. Social capital increases the likelihood a chair is viewed as a resource when the chair is independent, but actually decreases the likelihood a chair is viewed as a resource when the chair is either the current or former CEO. These results suggest that boards generally value human capital in their chairs, but view social capital through a somewhat more complex lens. We explore the possible implications of these findings in the article. Copyright © 2015 John Wiley & Sons, Ltd.

Last dance or second chance? Firm performance, CEO career horizon, and the separation of board leadership roles

In recent years, many firms have chosen to separate their CEO and board chair positions. Prior research has demonstrated that there are three forms that a CEO�board chair separation can take: apprentice, departure, and demotion. In this paper, we examine the antecedents of these three types. Our results show that the three types of separation each have different profiles in terms of the prior performance of the firm, the independence of the board, and the career horizon of the incumbent CEO. The findings in this paper provide unique insights into the factors that drive boards' structural choices. As questions about board leadership structure become more nuanced and more relevant in both scholarship and practice, a full understanding of these factors will only become more important.

Correlates of Board Empowerment in Small Companies

This study seeks to advance the understanding of board empowerment in small companies. Predictions based on agency and resource dependency theories were used to examine how contingency factors correlate with board empowerment, in this study conceptualized as a larger number of board members, a higher representation of outside directors, and separate CEO and board chair positions. Statistical analyses on a sample of 135 small companies gave ample support for the agency–theoretic prediction that board empowerment in small companies is a response to satisfy the demands from owners not directly involved in managing the company. Other factors influencing board empowerment were younger CEOs, high degree of exports, and past poor company performance. The influence of these contingency factors, however, was not as strong and extensive as the presence of outside owners. The article ends with a discussion of the findings and their implications for understanding boards and governance in small companies.

Should the CEO Also Be Chair of the Board? An Empirical Examination of Family-Controlled Public Firms

Using the competing agency theoretic and stewardship theory perspectives, we empirically examine the relationship between CEO duality and firm performance in family-controlled public firms (FCPFs). We find that duality by itself does not influence firm performance in FCPFs. However, our results show that the relationship between duality and performance is contingent on the family's ownership stake in the firm. In nondual firms, performance is inversely related to family ownership level. Dual FCPFs do not exhibit any changes in performance dependent on family ownership levels. Our findings reveal, in short, that when family ownership is low, the separation of CEO and board chair roles is beneficial in terms of shareholder returns. Having different persons occupy the CEO and board chair positions is a useful governance control as the risk of family entrenchment increases.

Boards of Directors, Audit Committees, and the Information Content of Earnings

We examine the relation between the information content of earnings (earnings response coefficients) and board and audit committee structure for a broad sample of more than 1,200 firms during 2001. We find that earnings are more informative the greater is the independence and the activity of the full board. Moreover, firms that have separated the CEO and board Chair positions appear to have more informative earnings. We also find that audit committee characteristics influence the information content of earnings. In particular, firms that have smaller audit committees have more informative earnings. However, we find that audit committee independence incremental to the independence of the full board is unrelated to the information content of earnings.

The Changing of the Guard: Turnover and Structural Change in the Top-Management Positions

The authors are listed in order of age; all three authors made major contributions to this paper. We wish to thank Marshall Meyer, Jeff Pfeffer, and two anonymous ASQ reviewers for comments on an earlier draft. This paper explores the nature and relationship of the positions of CEO and chair of the board of directors through two related analyses, one examining CEO and board chair turnover and the other examining consolidations and separations in these two positions, using transition-rate analysis, in a sample of 671 large American manufacturing firms for the period from 1978 to 1980. Both turnover and structural change in the top positions were found to depend on firm performance and industry structure; turnover also depended on firm size and the structure of the positions, and structural change also depended on board structure, controlling for retirements. The results highlight the power of the CEO, the tendency to consolidate the top positions under the CEO, and the greater accountability of the person in the combined position for firm performance. The paper concludes with some implications of the findings for understanding the CEO and board chair positions, with an emphasis on top-management power, makes recommendations for research on turnover, and provides suggestions for corporate behavior, based on the results of this study.'