Selection Management Research Articles

Do Director Elections Matter?

Using a hand-collected sample of more than 30,000 directors nominated for election over the period 2001–2010, we construct a novel measure of director proximity to elections — Distance-from-election. We find that the closer a director is to her next election, the higher is CEO turnover–performance sensitivity. Each year closer to director elections is associated with a 23% increase in CEO turnover–performance sensitivity. Three tests support a causal interpretation. Cross-sectional tests further show that, when other governance mechanisms are in place, CEO turnover–performance sensitivity is less affected by Distance-from-election. We conclude that director elections have important governance implications.

The Power of Shareholder Votes: Evidence from Director Elections

In the U.S., votes in director elections are advisory but are often used by shareholders to express dissent. We examine whether these non-binding votes have consequences for directors and report affirmative evidence. Directors facing dissent are more likely to depart boards, especially if they are not lead directors or chairs of important committees. Directors facing dissent who do not leave are moved to less prominent positions in boards. These effects are more pronounced in firms with greater ownership by institutional investors who pose exit threats. Finally, we find evidence that directors facing dissent face reduced opportunities in the market for directors, consistent with the Fama and Jensen (1983) view of the disciplining role of the market for directors. We show that contrary to popular belief, shareholder votes have power and result in negative consequences for directors. We also find that the effects of dissent votes go beyond those of proxy advisor recommendations.

Ask not what your Society can do for you, ask what you can do for your Society!

Are you a metabolomics scientist? Would you like to represent the metabolomics community? Would you like to be involved in driving forward international developments in metabolic science, community interactions and information exchange? If so, read on.... The Metabolomics Society (www.metabolomicssociety. org), founded in 2004, is the international Society promoting the development, use and understanding of metabolomics worldwide. The Society is growing year by year, supported by hundreds of individual, as well as several corporate members. One of the primary activities of the Society is to organize the premier international conference in metabolomics, with alternating annual venues in North America, Europe and the greater Asia–Pacific region. However, the Society also offers members an increasing list of other benefits, such as travel awards and prizes, funding for meetings, access to conference presentation videos, webinars from leading researchers, posting of job or event adverts and more. The Society is led by a Board of up to 14 Directors (http://www.metabolomicssociety.org/board/board-of-direc tors), consisting of leading metabolomics researchers from around the world, and including the three Officer positions of President, Treasurer and Secretary. The immediate past Officers remain as part of the Board for two further years, in a non-voting role, to ensure a smooth transition of knowledge and responsibilities. For operational efficiency, the Board devolves its daily activities across numerous committees and task groups. These include the Conference and Training Committee, the Website and Communications Committee, the Publications Committee, the Membership Committee, and the Nominations and Elections Committee. These committees typically consist of 3–4 board members. In contrast, Task Groups involve a few Board members, but also have non-Board participants to allow greater contributions from around the community. The number of Task Groups is growing and now includes new groups such as Data quality, Computational Mass Spectrometry and Model Organism Metabolomes. Details of the committees and task groups can be found on the Society website. The Board of Directors is entirely voluntary, but since January 2014 has been greatly aided by the services of the Society’s management company, A-S-K Associates. They provide administrative support, allowing Directors to focus on the scientific and professional issues facing the community. Each Director commits to a term of 2 years, after which he/she has the option to stand for re-election for a second 2-year term. The process for election of new Directors is initiated around May/June each year. In 2015, one current Director will finish their second term and therefore provide spaces for one new Director to be elected. In addition, four Directors will finish their first term and may stand for reelection. For the new positions we are calling on the membership to nominate outstanding and energetic metabolomics researchers to join the Board. To maintain the growth of the Society, and build on the momentum generated in recent years, we need researchers who are both active in metabolomics sciences but also motivated to serve the community by developing the vision and activities of the Society still further. Nominees should be able to commit sufficient time to be actively involved in typically two of the Board’s tasks groups and committees, an average commitment of *2 h per week. & Timothy M. D. Ebbels t.ebbels@imperial.ac.uk

Managerial Selection Decisions in Multinational Corporations: Teaching International Business Using Problem-Based Learning

Companies face many challenges as they staff managerial positions in overseas operations, including decisions on whether to staff using expatriates, host-country nationals, or third-country nationals. We developed an exercise—designed to help students understand the differences between these three groups of employees—that requires students to develop a set of criteria that would form the basis for choosing the candidate they deem to be the best one. In addition, the exercise can serve as a springboard to discussion of the different training and compensation requirements for each of the three different types of employee. The steps involved in the exercise are presented together with suggestions for debriefing the exercise.

"Stranger on the Board: CEO/Board Social Ties, Outside Director Selection and Board Monitoring"

In this study, we develop and test a theory of director selection which integrates information processing perspective with socialization literature. We argue that new outside directors lacking soci...

The company secretary’s role in CG: private and public owned south African companies

This study investigates the role of the company secretary in ensuring and promoting proper Corporate Governance (CG) in public and private owned South African companies, so as to educate companies on their significance in reducing corporate scandals. The study followed a mixed research paradigm in which qualitative and quantitative methods of data collection were used. Fifty questionnaires were sent to company secretaries of different business sectors giving a response rate of 78% with four of the participants telephonically interviewed to gather qualitative data. The study confirmed that the company secretary still plays a significant role in promoting CG by giving support and advising the board and its directors on CG matters. The results further show that some company secretaries are involved in director selection, performance evaluation and implement induction, training and/or professional development to strengthen the company’s governance practices. Through the use of the Companies Act and the Kings report the company secretary ensures directors are kept abreast of relevant legislative and regulatory developments. It was observed that the company secretary ensures good information flow between the board, directors and stakeholders and keeps record of all conflicts of interest. Though the company secretary is appointed by the board they can whistle blow any misconduct under the protection of the Protected Disclosure Act, thus ensuring effectiveness of their role. Despite the fact that some of the company secretaries are facing challenges due to the ever evolving and increasing complexity of their roles, there has been evolution with regards to legislation, greater transparency, better governance and improved investor expectation. This study enriches company secretaries with knowledge of their expected role in CG.

A Different Perspective on Ownership in Firms Quoted at Borsa Istanbul

This study aims to investigate ownership in Turkish public firms from a different perspective than in previous studies. It investigates various patterns in the interaction of ownership measures and other corporate governance mechanisms. I find that compared to controlled firms, firms that are not controlled favor director elections triennially, have more blockholders, have less of their shares owned by these blockholders and have less of their shares held by foreign blockholders. However, the difference in terms of shares owned by foreign blockholders appears to be driven by whether the firm is a value or a growth firm. Also, these non-controlled firms out-perform controlled firms, having higher risk-adjusted returns. Lastly, the findings also reveal that almost all of the public firms have at least one blockholder, and the average board size and the number of independent directors increase as the number of blockholders in the firm increases.

Protecting minority shareholders in blockholder-controlled companies: evaluating the UK's enhanced listing regime in comparison with investor protection regimes in New York and Hong Kong

This article considers the Enhanced Listing Regime as a novel measure to address minority shareholders’ concerns in UK Premium-listed companies with a controlling shareholder. There is critical analysis of the mandatory agreement between controlling shareholders and their Premium-listed companies to protect the company’s independence. There is also critical analysis of the re-ordering of voting rights under the Enhanced Listing Regime in favour of minority shareholders in the election of independent directors and where a cancellation of Premium listing is proposed. The article has comparative discussion of the minority shareholder protection regimes in the US and Hong Kong and how minority shareholder concerns in block-held companies may be addressed or otherwise.

Narcissism, director selection, and risk-taking spending

We explain why CEOs favor new directors who are similar in narcissistic tendency or have prior experience with other similarly narcissistic CEOs. Because powerful CEOs are more able to select such individuals onto their boards, CEO power is predicted to be positively associated with the above characteristics of new directors. These associations are expected to be stronger when a new director is more different from the CEO in salient demographic characteristics. Moreover, we explain why new directors favored by CEOs are more supportive of their decision making, strengthening the positive relationship between CEO narcissism and risk-taking spending. Our findings provide considerable support for our theory. This study introduces personality theories to corporate governance research on director selection and to research on how triads influence dyadic relations

Constitutional Voting Rules of Australian National Sporting Organisations: Comparative Analysis and Principles of Constitutional Design

In 2012 and 2013, four Australian national sporting organisations (NSOs), the Australian Football League, the Australian Rugby League Commission Limited, BA Limited (Basketball Australia) and Football Federation Australia Limited were also the national league competition organiser (NLCO) for their sport. All four NSOs are not-for-profit companies. We apply the model of optimal voting rules proposed by James Buchanan and Gordon Tullock to the actual voting rules adopted by the NSOs. This model focuses on the minimisation of costs associated with voting. We find that the NSO voting rules largely conform to the model although there are exceptions. In particular, constitutional issues (amendment of the constitutions of the NSOs and company wind up) require the approval of a greater proportion of the members than electoral issues (election and removal of company directors). Those issues with the highest costs (such as the appointment and removal of NSO company members and national league clubs) are typically removed from the domain of voting by company members to strengthen the independence of the NSO from the company members.

A Different Perspective on Ownership at Borsa Istanbul

This study aims to investigate ownership in Turkish public firms from a different perspective than in previous studies. It investigates various patterns in the interaction of ownership measures and other corporate governance mechanisms. I find that compared to controlled firms, firms that are not controlled favor director elections triennially, have more blockholders, have less of their shares owned by these blockholders and have less of their shares held by foreign blockholders. However, the difference in terms of shares owned by foreign blockholders appears to be driven by whether the firm is a value or a growth firm. Also, these non-controlled firms out-perform controlled firms, having higher risk-adjusted returns. Lastly, the findings also reveal that almost all of the public firms have at least one blockholder, and the average board size and the number of independent directors increase as the number of blockholders in the firm increases.

Understanding Uncontested Director Elections

We examine the determinants and consequences of voting outcomes in uncontested director elections. Exploiting a unique hand-collected data set of the rationale behind proxy advisors’ recommendations—the primary driver of voting outcomes—we document the director and board characteristics on which voting shareholders focus (as well as those that they neglect), their evolution over time, and their relative importance. Absent a negative recommendation, high votes withheld are infrequent, highlighting the agenda-setting role of proxy advisors. While high votes withheld rarely result in director turnover, our analyses show that firms often respond to an adverse vote by explicitly addressing the underlying concern. Overall, it appears that shareholders use their votes in uncontested director elections to get directors to address specific problems, rather than to vote them onto or off of the board, but they do so only on matters highlighted by the proxy advisors. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2760 . This paper was accepted by Suraj Srinivasan, accounting.

Mechanisms of Board Turnover: Evidence From Backdating

Regulators and governance scholars often regard the high rates of reelection among those nominated for boards of directors (and the small percentage of nominated directors who lose elections) as persuasive evidence of limited shareholder power. To correct this perceived imbalance against shareholders, some corporate governance advocates have undertaken a number of efforts to reform the director election system, most recently by proposing “proxy access” regulation to facilitate contested board elections.The authors take a close look at the board turnover within companies implicated in stock‐option backdating to assess the effectiveness of board elections. What they find is that, despite high reelection rates among nominated directors, board turnover is in fact substantial—but it takes place almost entirely before the board elections. Because of the apparently high costs associated with losing such an election, board nominees generally are not renominated for election (or reelection) unless success is quite likely. And whereas independent directors generally leave boards by not being renominated, management directors generally resign.For this reason, reelection rates tell us very little about the effectiveness of shareholder voting. But what the authors' findings do show is that directors involved in stock‐option backdating experience reductions in both the number and prestige of their future directorships. Thus, the authors' findings suggest that the board of director election process functions more effectively than shareholder advocates typically claim, that criticism of the responsiveness of the board‐election process to shareholder interests is overstated, and that reform efforts are therefore likely to be misplaced.

Does the director election system matter? Evidence from majority voting

We examine the effect of a change in the director election system — the switch from a plurality voting standard to a more stringent standard known as majority voting (MV). Using a regression discontinuity design, we document abnormal returns of 1.43-1.60% around annual meeting dates where shareholder proposals to adopt MV are voted upon, suggesting that shareholders perceive the adoption of MV as value-enhancing. We document an increase in boards’ responsiveness to shareholders at MV firms. In particular, relative to a propensity score-matched control sample, firms adopting MV exhibit an increase in the rate of implementation of shareholder proposals supported by a majority vote and in the responsiveness to votes withheld from directors up for election. Instead, we do not find a relation between votes withheld and subsequent director turnover, regardless of the election standard. Overall, it appears that, rather than a channel to remove specific directors, director elections are viewed by shareholders as a means to obtain specific governance changes and that, in this respect, their ability to obtain such changes is stronger under a MV standard.

The election process for the Board of Directors of the Metabolomics Society: call for nomination of new board directors

It’s election time! The International Metabolomics Society (www.metabolomicssociety.org) is a dynamic society, founded in 2004, and with a membership of almost one thousand scientists that is growing year on year. Historically, the primary activity of the Society has been to organize the premiere international conference in metabolomics each year, with alternating venues in North America, Europe and the greater Asia-Pacific region. While organizing this conference remains one of the most important events in the Society’s calendar, the Directors have recently put in place a range of other benefits and activities for its Members. The Society is led and managed by a Board of 13 Directors (http://www.metabolomicssociety.org/board_of_directors), consisting of leading metabolomics researchers from around the world, and which includes the three Officer positions of President, Treasurer and Secretary. The exiting Officers remain as part of the board for 2 further years to ensure a smooth transition of tasks and responsibilities. For operational efficiency, the Board devolves its daily activities across numerous committees and task groups. These include the Website & Communications Committee, the Publications Committee, a Membership Committee, a Conference & Training Committee and a Nominations & Election Committee. These committees typically consist of 3–6 board members. The task groups, such as the International Affiliation Task Group, the Industry Liaison Task Group, the Data Standards Task Group, the Metabolite Identification Task Group and the Society Strategy Task Group, each consist of a few board members and also have non-board participants from the community. Each Director commits to a term of 2 years to the board and the society. After that he/she has the option to stand for re-election for a second 2-year term. Around May/June each year the process for election of replacement Directors is initiated. In 2014, four current Directors will have their second term of duty finished and therefore will provide spaces for four new Directors to be elected. In addition, we have three Directors who will finish their first term and may stand for re-election. For the new positions available we are calling on our membership base to nominate outstanding and excited metabolomics research leaders who would be interested and have the time to be fully committed to serve on the Board of Directors of the Society. The Board is interested to have researchers nominated who are active in the metabolomics sciences and also who are keen and motivated to serve on the Board to develop and strengthen the visibility and viability of the Metabolomics Society further. The nominees also should be able to commit sufficient time to be actively involved in typically two of the Board’s tasks groups and committees, an average commitment of *2 h per week. The election process is driven and overseen by the Nominations & Election Committee, which consists of two Board members and two non-board Members who observe the process for transparency. Once the nomination process is finalized the Nominations & Election Committee will collect information from the nominees including a short biography and a statement of commitment which will be published on the Society’s website allowing the membership to select and vote for their preferred nominees. The voting process will finish in August each year. The Nominations & Election Committee then selects the nominees with the highest number of votes and invites them to become a Director. Beginning on October 1st, the newly elected Board members begin their term of office. U. Roessner Metabolomics Australia and Australian Centre for Plant Functional Genomics, School of Botany, The University of Melbourne, 3010 Parkville, VIC, Australia

Symbolic Corporate Governance Politics

How are we to understand the persistent gap between rhetoric and reality that characterizes so much of corporate governance politics? In this Article, we show that the rhetoric around a variety of high profile corporate governance controversies (including shareholder proposals asking boards to redeem poison pills, proxy access, majority voting in director elections, and shareholder proposals to remove supermajority voting requirements) cannot be justified by the material interests at stake. At the same time, shareholder activists are oddly reluctant to pursue issues that may have a more material impact, such as anti-pill charter provisions or mandatory bylaw amendments. We consider a variety of explanations for this phenomenon including “public interest” analyses, “public choice” analyses, and the possibility that corporate governance politics has a substantial “symbolic” or “folkloristic” element. Elaborating on arguments made in Thurman Arnold’s The Folklore of Capitalism, we suggest that there is an analogous “Folklore of Corporate Governance” that serves to reconcile the gap between our idealized view of corporations as controlled by real-life shareholders and the inevitable reality that effective control largely resides in managements and in disembodied institutions. We consider some implications of the explanations we put forward.

Shareholder Voting in an Age of Intermediary Capitalism

Shareholder voting is a key part of contemporary American corporate governance. As numerous contemporary battles between corporate management and shareholders illustrate, voting has never been more important. Yet, traditional theory about shareholder voting, rooted in concepts of residual ownership and a principal/agent relationship, does not reflect recent fundamental changes as to who shareholders are and their incentives to vote (or not vote). In the first section of the article, we address this deficiency directly by developing a new theory of corporate voting that offers three strong and complementary reasons for shareholder voting. In the middle section, we apply our theory to a world where most shares are held by institutional investment intermediaries (and mostly within retirement plans). We show that intermediaries’ business plans give them little reason to vote those shares and even create conflicts of interest that may distort their votes. Yet several key developments have countered that reality and opened the way for voting’s new prominence. First, government regulations now require many institutions to vote their stock in the best interests of their beneficiaries. Second, subsequent market innovations led to the birth of third party voting advisors, including Institutional Shareholder Services (ISS), which help address the costs of voting and the collective action problems inherent in coordinated institutional shareholder action. Third, building on these developments, hedge funds have aggressively intervened in corporate governance at firms seen as undervalued, regularly using the ballot box to pressure targeted firms to create shareholder value, thereby giving institutional shareholders a good reason to care about voting. But there is more to the corporate franchise than hedge fund inspired voting. Say on Pay proposals, Rule 14a-8 corporate governance proposals, and majority vote requirements for the election of directors, are all important, recurrent topics involving shareholder votes. We must also explain why these lower value votes should be held. In our concluding section, we apply our theory to examine when shareholder voting is justified. We examine hedge fund activism as an example of high value voting situation and Say on Pay votes as an illustration of lower value cases where there are still good reasons to have shareholder votes.

Activism and the Shift to Annual Director Election

We examine a comprehensive sample of 465 firms that switch from staggered boards to annual director elections between 2003 and 2010. Shareholder activism is an important determinant of the manner of the switch. When the change is pushed by aggressive hedge fund activists the board is more likely to embrace annual elections immediately and the markets react favorably, but if the change is pushed by non-binding shareholder proposals, the response is to drag out the change as much as possible and the markets are commensurately unimpressed. Moreover, our sample firms are substantially more likely to be acquired in the ensuing two years when the shift to annual elections is pushed by activist hedge funds.

Selection patterns in front-end decision making - determining the probability of idea progress within the internal innovation process

Front-end decision making is a vastly challenging task due to the typically high number of alternatives being evaluated. These alternatives provide little information and high levels of uncertainty, resulting in a blur of possible decision criteria. This paper is dedicated to the identification of possible selection strategies under these circumstances. With formal given key figures as well as with observable informal key figures which potentially affect decision making, we uncover present decision patterns. Based on the documentation of evaluations for 53 ideas and the observation of managerial idea selection in the front-end framework of a chemical company, we present how this analysis can be conducted in practice. Our results show that the fuzziness of the front end of innovation is not always sufficiently included in the decision-making process.

Opening the black box of nomination committees: a case study of non-executive director selections in German supervisory boards

One important pre-requisite for the functioning of supervisory boards is the selection of adequate members. Accordingly, corporate governance codes recommend the professionalisation of the board selection process through the establishment of nomination committees. These committees should carry out two principal tasks: 1) drawing up appropriate requirement profiles; 2) rationally structuring the selection process. Analysing in-depth interviews with 27 nomination committees’ members of twelve German supervisory boards, we show that not all nomination committees fulfil these tasks satisfactorily; sometimes they merely act symbolically and rationalise decisions already taken by CEOs or main shareholders ex-post. Overall we succeed in identifying three prototypical nomination committees – active, consultative, and box-ticking – and show their impact on the board selection process.