Directors Face Research Articles

Governing Innovation: Director Job Security and Innovation Project Choices

In this paper, we show that firms can become conservative in innovation when their directors face job insecurity. We find that after the staggered enactment of majority voting legislation that strengthens shareholders' power in director elections, firms produce fewer patents, particularly exploratory patents, and fewer forward citations. This effect is stronger for directors facing higher dismissal costs or threats and for firms with more transient investors or greater needs for board expertise. Moreover, firms reduce their innovation activities more in fields unfamiliar to directors. Our results suggest that directors have incentives to avoid risky innovation when facing greater job insecurity.

Looking for Chauka

Arash Kamali Sarvestani codirected and produced Chauka, Please Tell Us the Time (2017) while residing in the Netherlands and communicating with his codirector Behrouz Boochani through WhatsApp application. In this paper, Kamali Sarvestani explains his own journey as an artist living in diaspora and provides exclusive insight into the collaboration and consultation process with his exiled and incarcerated colleague. He details the influence of Iranian filmmaker Abbas Kiarostami, the guidance he gave Boochani (who had never directed a film until then), how the project transformed from its initial phases through to its distribution and reception, and the ongoing obstacles both directors face.

Boards and Sustainable Value Creation: The Legal Entity, Co-Determination and Other Means

Boards of directors face growing pressures to engage with systemic risks and sustainable value creation. In this article I explore how an entity view in company law provides a consideration of the status, architecture and purpose of the modern corporation that theoretically offers the capacity to integrate such issues in corporate strategy. I also explore how specific models of corporate architecture such as co-determination relate to such an entity view. Exploring different perspectives on the VW case I show how a dominant view of corporate governance conflicts with the assumptions underlying co-determination. In relation to these issues I argue that the entity view and co-determination do not provide panacea for the reform of corporate governance theory and practice, but provide conceptual building blocks that may be used to engage in a creative way with notions of status, architecture and purpose in order to enhance the capacity for company directors to engage with systemic risks and sustainable value creation in corporate strategy.

Entrenchment vs long-term benefits: classified boards and CSR

PurposeAlthough most corporate directors face reelection by shareholders each year, directors of companies with classified boards are elected for multiple-year terms. Classified boards may engender managerial entrenchment, which may make directors less responsive to shareholders’ interest in corporate social responsibility (CSR). Alternatively, classified boards may engender a longer-term focus, which could make the board more willing to engage in projects with longer-term benefits, such as CSR. This study aims to assess whether larger boards, with potentially more diverse voices, may be positively related to CSR, and a larger board may change the classified boards/CSR relationship.Design/method/approachThe authors examine the relationship between board type (companies with and without classified boards), board size and CSR for 4,489 firm-years (1,540 with classified boards and 2,949 without classified boards) from 2013 through 2015.FindingsThe authors find no difference in CSR strengths between companies with and without classified boards, but the authors do find that companies with classified boards have more CSR concerns than companies without classified boards. For all types of boards, a larger board size is associated with more CSR strengths and reduces the negative impact of having a classified board on CSR concerns.Practical implicationsClassified boards may be less responsive to shareholders’ preference for reduced company CSR concerns, but an increase in board size can mitigate this effect.Social implicationsClassified boards may weaken a company’s CSR performance.Originality/valueThis is the first paper to consider the relationship between classified board and CSR.

Does proximity to corporate headquarters enhance directors' monitoring effectiveness? A look at financial reporting quality

AbstractResearch question/issueIn this study, using a unique Canadian setting that relies on a principle‐based corporate oversight environment and that has access to a large pool of U.S. directors, we investigate how directors' proximity to a firm's headquarters influences its financial reporting quality.Research findings/insightsOur results show that financial reporting quality is higher for firms whose boards (audit committees) consist of a greater proportion of independent directors who reside close to a firm's headquarters than for firms whose boards consist of directors who are more geographically dispersed. However, among nonlocal directors, the effect of nonlocal domestic directors on financial reporting quality is similar to the effect of local directors. In contrast, compared with local directors, the presence of U.S. directors has a negative impact on financial reporting quality.Theoretical/academic implicationsOur results suggest that directors' proximity to corporate headquarters extends beyond geographical proximity and also reflects directors' familiarity with a firm's institutional environment. Institutional familiarity helps domestic nonlocal directors reduce information costs associated with low geographical proximity, thus providing them with access to a wider range of information sources and enhancing their monitoring ability, at least for financial reporting. In contrast, foreign directors face information costs arising from both low geographical proximity and less familiarity with the institutional environment.Practitioner/policy implicationsFirms should take into consideration the consequences of nominating nonlocal directors on the monitoring of financial reporting quality. In addition, regulators should take a more comprehensive approach if they impose regulations such as board diversity initiatives, as regulatory pressures often imply appointing directors farther away from headquarters.

Corporate Governance Evolution and Challenges in the New Companies Act

The proposed paper discusses the evolution of corporate governance norms in India since the liberalization of the Indian economy, touching upon the Kumar Mangalam Committee Report, the Narayana Murthy Committee on Corporate Governance and clause 49 of the Listing Agreement. In particular, it identifies and critically analyzes the corporate governance changes brought in the new Companies Act enacted in 2013. Saliently, the Act has amended the definition of independent directors and made it stricter; it is submitted that a “principles-based” approach to defining independence may be better suited as the categories creating conflict of interest cannot be exhaustively enumerated. Similarly, the scope of limitation of liability for directors under this Act should have been extended to exempt outside directors from liability under all acts/laws as it has been observed anecdotally that outside directors face charges under other statutes like the Negotiable Instruments Act, 1881, the various environmental laws et al. In other respects, the recognition of short form mergers is a welcome reform to the MA the stipulation of prescribed shareholding (and debt holding) thresholds to challenge MA however, the expression, “prejudicial to the company or members” as interpreted by Supreme Court earlier appears to prescribe a high onus of proof on the class action plaintiffs.

Female directors and CEO power

Beyond the recent studies on boardroom gender diversity, this letter investigates the effect of boardroom gender diversity on CEO power. Using the data of all A-share listed companies on the Shanghai and Shenzhen stock exchanges for 2005–2015 we find reliable evidence that gender diversity on the board is positively associated with CEO power. Our results remain consistent after controlling for the endogeneity problem. Our results support the inefficiency hypothesis that suggests that CEOs are more powerful when the board is gender-diverse because female directors face more pressure to go along with management and are weak monitors.

Zone of Insolvency, Directors’ Duties and Creditors’ Protection in U.S.

When a company is navigating in the “zone of insolvency” – usually defined as the extent of the risk that creditors will not be paid – its directors face the dilemma related to their managerial decisions in the light of the foreseeable effects and risks for shareholders and for creditors. It is a generally accepted principle in U.S. that when a company is approaching such “zone of insolvency” or is in the “vicinity of insolvency” no fiduciary duties are owned to the creditors as expression of the shareholder primacy rule. The aim of this article is to demonstrate the existence of provisions of law together with important policy reasons that impose the duties shifting to creditors in the zone of insolvency and that allow to create a presumption of directors’ knowledge of when their duties shift, which means when the company is getting closer to insolvency. Accordingly, this article seeks to demonstrate that directors’ duties toward creditors should shift on the ground of two reasons: Firstly, the directors’ and shareholders’ opportunistic behavior – together with the opportunistic behavior of well-informed creditors–. Secondly, the need to preserve value for creditors. By comparing U.S. principles with UK insolvency system the conclusion is in the sense that in the zone of insolvency directors should have a clear duty to take every reasonable step in order to minimize the risk of potential losses for creditors. Moreover, this article shows that in U.S. from the interconnection of the MD&A provisions with the law of avoidable preferences, a general principle accordingly can be inferred. It brings that directors have the duty to know when the company is in trouble and therefore that insolvency is looming at the horizon, with a presumption that covers the period of time starting from the last financial statements release until the day of the bankruptcy filing. Specifically, the law of preferences as section 547 of the Bankruptcy Code – by striking down last-minute grabs – conceptually admits the principle that directors together with control shareholders and strong creditors know longer time in advance that the company will face a liquidation proceeding than other creditors and outsiders. As a consequence, the Delaware approach of allowing full discretion to the board of directors even at the “end game” stage with its actual risk of opportunistic behavior (asset dilution, asset substitution, debt dilution, conflicts among creditors) is incongruent with the retrospective approach of both state creditors’ remedies and federal bankruptcy law that after insolvency challenges distributions to shareholders and favors creditors and seeks recoupment. Therefore, this article argues for a pre-insolvency, “end stage” rule of constraint by demonstrating that the UK wrongful trading liability of directors is more coherent and congruent with majority legal systems’ post-bankruptcy recapture approaches than the U.S. one found in the Delaware jurisprudence.

Do female directors really add value in Indian firms?

The study examines the effect of female directors on firm performance for Indian firms, where the domination of family firms and a patriarchal society may reduce the importance of female directors. Our empirical results suggest that the gender diversity does not matter for Indian firms. Our further results support this finding by indicating that female directors face more attendance problems compared to male directors, and are less likely to be appointed in monitoring-related committees. Overall, our results strengthen the tokenism status theory associated with female directors, especially in family-owned firms and in a patriarchal society.

Do Tax Directors Face Consequences from Tax Avoidance?

I examine the association between tax avoidance and tax director turnover. Specifically, I hand collect the names of tax directors and explore whether tax directors face consequences from making certain tax avoidance decisions. This unique dataset allows me to examine the tax director, who is directly responsible for taxes, which are one of the most significant accounts, and who prior literature has largely ignored due to a lack of availability of data. I find evidence that the tax director is more likely to face consequences, as measured by turnover, when their firm’s effective tax rate is higher than the industry median’s effective tax rate and when the effective tax rate is volatile. Accordingly, these results provide an understanding of the consequences of tax directors’ tax avoidance decisions. In supplemental analysis, I examine samples of firms that engaged in aggressive tax avoidance, had tax-related restatements and had tax-related internal control weaknesses. I do not find evidence that tax directors face consequences, as measured by turnover, compared to a set of matched tax directors for any of the supplemental tests. Overall, these findings suggest that tax directors face consequences related to middle range tax avoidance decisions but do not face consequences from very aggressive tax avoidance and GAAP-related tax decisions.

The Importance of Non-CEO Inside Directors When CEOs Suddenly Depart

A firm’s ability to quickly recover from setbacks is of great importance to its stakeholders and investors. Although critics argue that inside directors decrease the monitoring effectiveness of a board, inside directors arguably possess superior firm specific experience and knowledge. The main purpose of this paper is to investigate the roles of non-CEO inside directors using the context of sudden CEO departures when immediate CEO succession planning is of great importance. Using a unique data set of 351 sudden CEO departures from 1993 to 2009, we find evidence that firms with non-CEO inside directors face fewer disruption costs and have superior performance following the change in CEO, especially when the firm hires an outsider as the new CEO.

Monitoring the Monitor: Distracted Institutional Investors and Board Governance

Boards are crucial to shareholder wealth. Yet, little is known about how shareholder oversight affects director incentives. Using exogenous industry shocks to institutional investor portfolios, we find that institutional investor distraction weakens board oversight. Distracted institutions are less likely to discipline ineffective directors. Consequently, independent directors face weaker monitoring incentives and exhibit poor board performance; ineffective independent directors are also more frequently appointed. Moreover, we find that the adverse effects of investor distraction on various corporate governance outcomes are stronger among firms with problematic directors. Our findings suggest that institutional investor monitoring creates important director incentives to monitor.

Museum XYZ, Major City, USA

Museum XYZ built a beautiful facility in a large, Midwestern city. However, after opening to much acclaim, attendance began to fall off, finances were in a shambles, and there appeared to be a leadership void. The board hired two consultants to conduct a review to pinpoint the issues. This case discusses what the consultants learned, and the teaching note discusses what the board decided to do with the information.To showcase the sometimes difficult decisions that nonprofit boards of directors face, including: the importance of defining an organization's mission and its stakeholders, the value of strategic planning, managing large-scale financial issues, establishing professional and lay leadership, successfully raising funds for purposes that further the mission, and managing change and organizational transformation.

Symbolic Management and the Glass Cliff: Evidence from the Boardroom Careers of Female and Male Directors

AbstractThis paper uses archival board data to demonstrate that women who take positions as directors of UK companies have shorter tenures than their male counterparts. The authors show that female directors face a much higher risk of dismissal as they approach nine years of service on the board, when their long service deprives them of the all‐important classification as ‘independent’. At this point, their position on the board becomes precarious. Male directors do not suffer the same increase in boardroom exit. This gender‐specific difference is clearly shown to be linked to the independence status. It is argued that these observations are consistent with the notion that female directors are being used in the symbolic management of corporate governance and that, at nine years, when the cloak of independence disappears, women directors are then exposed to the biases that arise from role congruity issues.

Inelastic Labor Markets and Directorss Reputational Incentives

We study the labor market consequences that result from directors’ limited capacity to sit on boards and their resulting incentives stemming from career concerns and future prospects. We find that directors who leave one board are more likely to subsequently join a new board, regardless of the previous firm’s performance. This findings is symptomatic of excess demand for directors’ services and therefore binding constraints on their ability to sit on additional boards. Consistent with many directors facing binding supply constraints, using three arguably exogenous changes in the tightness of directors’ supply constraints, we find that directors with more binding constraints are more likely to substitute board seats as these constraints relax. Collectively, our evidence suggests that many directors face limitations in their ability to join additional boards, potentially diminishing their labor market-based incentives.

Who should serve on health care boards? What should they do and how should they behave? A fresh look at the literature and the evidence

Public boards of directors face challenges in demonstrating effectiveness and return on investment. Health care boards in particular operate in a high risk service and political environment, where ...

Are academic independent directors punished more severely when they engage in violations?

We use a sample of Chinese A-share listed companies from 2003 to 2013 to explore the reputation damage and overflow effect of academic independent directors who have received supervisory punishment. We find that when companies violate information disclosure rules, the market punishes academic independent directors more severely than nonacademic independent directors for these violations. Furthermore, companies employing punished academic directors face greater declines in their stock price than companies employing punished nonacademic independent directors during a relatively short window before or after the punishment is announced. The punishment of academic independent directors influences the employment of other scholars in the same field and results in a negative overflow effect. This study provides evidence of the market’s differential reactions to independent directors with different backgrounds; the findings reflect the double-edged sword of one individual’s reputation on organizations.

Pharmacy2U directors face fitness to practise committee over sale of patient data

Pharmacy2U directors face fitness to practise committee over sale of patient data

Athletic Directors' Barriers to Hiring Athletic Trainers in High Schools.

In its best-practices recommendation, the Inter-Association Task Force for Preventing Sudden Death in Secondary School Athletics Programs urged all high schools to have a certified athletic trainer (AT) on staff. Despite the recommendation, many high schools lack the medical services of an AT. To examine the barriers that athletic directors (ADs) face in hiring ATs in public high schools and in providing medical coverage for their student-athletes. Qualitative study. Semistructured telephone interviews. Twenty full-time public high school ADs (17 men, 3 women) from various geographical regions of the United States (6 North, 4 South, 4 Midwest, 6 West) participated. Data saturation guided the total number of participants. We completed telephone interviews guided by a semistructured questionnaire with all participants. Interviews were recorded and transcribed verbatim. Multiple-analyst triangulation and peer review were included as steps to establish data credibility. We analyzed the data using the principles of the general inductive approach. We identified 3 themes. Lack of power represented the inability of an AD to hire an AT, which was perceived to be a responsibility of the superintendent and school board. Budget concerns pertained to the funding allocated to specific resources within a school, which often did not include an AT. Nonbudget concerns represented rural locations without clinics or hospitals nearby; misconceptions about the role of an AT, which led to the belief that first-aid-trained coaches are appropriate medical providers; and community support from local clinics, hospitals, and volunteers. Many ADs would prefer to employ ATs in their schools; however, they perceive that they are bound by the hiring and budgeting decisions of superintendents and school boards. Public school systems are experiencing the consequences of national budget cuts and often do not have the freedom to hire ATs when other school staff are being laid off.

Athletic Directors' Barriers to Hiring Athletic Trainers in High Schools.

In its best-practices recommendation, the Inter-Association Task Force for Preventing Sudden Death in Secondary School Athletics Programs urged all high schools to have a certified athletic trainer (AT) on staff. Despite the recommendation, many high schools lack the medical services of an AT. To examine the barriers that athletic directors (ADs) face in hiring ATs in public high schools and in providing medical coverage for their student-athletes. Qualitative study. Semistructured telephone interviews. Twenty full-time public high school ADs (17 men, 3 women) from various geographical regions of the United States (6 North, 4 South, 4 Midwest, 6 West) participated. Data saturation guided the total number of participants. We completed telephone interviews guided by a semistructured questionnaire with all participants. Interviews were recorded and transcribed verbatim. Multiple-analyst triangulation and peer review were included as steps to establish data credibility. We analyzed the data using the principles of the general inductive approach. We identified 3 themes. Lack of power represented the inability of an AD to hire an AT, which was perceived to be a responsibility of the superintendent and school board. Budget concerns pertained to the funding allocated to specific resources within a school, which often did not include an AT. Nonbudget concerns represented rural locations without clinics or hospitals nearby; misconceptions about the role of an AT, which led to the belief that first-aid-trained coaches are appropriate medical providers; and community support from local clinics, hospitals, and volunteers. Many ADs would prefer to employ ATs in their schools; however, they perceive that they are bound by the hiring and budgeting decisions of superintendents and school boards. Public school systems are experiencing the consequences of national budget cuts and often do not have the freedom to hire ATs when other school staff are being laid off.