Anil Shivdasani, David Yermack
ABSTRACT
We study whether CEO involvement in the selection of new directors
influences the nature of appointments to the board. When the CEO serves
on the nominating committee or no nominating committee exists, firms
appoint fewer independent outside directors and more gray outsiders with
conflicts of interest. Stock price reactions to independent director
appointments are significantly lower when the CEO is involved in director
selection, and independent appointees are more likely to serve on large
numbers of other boards, a practice disfavored by investor activists. Our
evidence may illuminate a mechanism used by CEOs to reduce pressure from
active monitoring, and we find a recent trend of companies removing CEOs
from involvement in director selection.
Shivdasani: (919) 962- 3182 shivdasa@icarus.bschool.unc.edu
Yermack: (212) 998-0357 dyermack@stern.nyu.edu
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