A Theory of Corporate Boards and Forced CEO Turnover

Communication and Decision-Making in Corporate Boards

“…The process through which the board comes to the …nal decision is modeled in a reduced- 12 I show that the only di¤erence of the case L > N from the case L = N is that the equilibrium expected …rm value is reduced by a constant equal to the variance of the unknown term P L i=N +1 x i : 13 For example, if all but one director have moderately positive signals about the proposal under consideration, the proposal will be approved by a majority of votes, even though the remaining director may have an extremely negative signal, which makes the proposal detrimental. simplest possible linear speci…cation of this function for the most part of the analysis.…”

“…In the context of a two-member board, Warther (1998) shows that costs of dissent make directors reluctant to vote against the manager even if their private information about him is negative. 8 Chemmanur and Fedaseyeu (2010) consider a more general model than Warther (1998), with an arbitrary number of directors, and demonstrate that this coordination problem becomes even more severe as the size of 6 See, e.g., Hermalin and Weisbach (1998), Almazan and Suarez (2003), Hermalin (2005), Song and Thakor (2006), Adams and Ferreira (2007), Kumar and Sivaramakrishnan (2008), and Chakraborty and Yilmaz (2010). 7 Baranchuk and Dybvig (2009) study individual directors'preferences and information, but use a cooperative solution concept instead of modeling directors'decisions explicitly.…”

“…6 In contrast, the current paper considers the board as a collective decision-making body and focuses on the interaction between board members in the presence of biases and concerns for conformity. 7 In this respect, my paper is most closely related to Warther (1998) and Chemmanur and Fedaseyeu (2010), who analyze individual directors'…”

What do Boards Really Do? Evidence from Minutes of Board Meetings

“…( 2008), and Chemmanur and Fedaseyeu (2011) all adopt variants of this supervisory approach. Panel 2 of Table 3 characterizes these and other models based on the supervisory approach.…”

“…Harris and Raviv (2008) and Chemmanur and Fedaseyeu (2011) both argue that larger boards have both costs and benefits; while larger boards have cumulatively more knowledge and expertise, each of the directors is likely to exert less effort because of free riding among directors. In Table 9 we estimate the way in which the number of directors in attendance at a particular meeting affects the directors' actions at that meeting.…”