Board Antecedents of CEO Duality and the Moderating Role of Country‐level Managerial Discretion: A Meta‐analytic Investigation

CEO duality reduces boards’ monitoring capacity. But governance substitution theory holds that boards of directors who can effectively monitor their CEOs are more likely to adopt the CEO duality governance structure. By examining relationships between board characteristics underlying their monitoring capacity and CEO duality, we bring evidence to bear on governance substitution theory. Further, by applying a managerial discretion theory lens to CEO duality, we extend governance substitution theory to the cross‐country context where institutional features vary in their constraints on managerial discretion. Meta‐analytic results from a dataset of 297 studies across 32 countries/regions provided support for the majority of our predictions. As predicted, board independence and certain types of board human capital were positively related to CEO duality. Unexpectedly, board ownership was negatively related to CEO duality. Additionally, country‐level managerial discretion significantly moderated the board independence‐ and human capital‐duality relationships (but not the board‐ownership‐duality relationship) as predicted.     

Too Good to be True: Board Structural Independence as a Moderator of CEO Pay‐for‐Firm‐Performance

Whether voluntary or mandatory in nature, most recent corporate governance codes of best practice assume that board structural independence, and the application by boards of outcome‐based incentive plans, are important boundary conditions for the enforcement of Chief Executive Officer (CEO) pay‐for‐firm‐performance; that is, for optimal contracting between owners and executive agents. We test this logic on a large Australian sample using a system Generalized Method of Moments (GMM) approach to dynamic panel data estimation. We find that Australian boards exhibiting best practice structural arrangements – those chaired by non‐executives and dominated by non‐executive directors at the full board and compensation committee levels – are no more adept at enforcing CEO pay‐for‐firm‐performance than are executive‐dominated boards. These findings suggest that policy makers' faith in incentive plans and the moderating influence of structural independence per se may be misplaced. Our findings also hold significant implications for corporate governance theory. Specifically, the findings lend further support to a contingency‐based understanding of board composition, reward choice and monitoring; an approach integrating the insights afforded by behavioural approaches to Agency Theory and by social‐cognitive and institutional understandings of director outlook, decision‐making and behaviour.     

The Moderating Effect of CEO Power on the Board Composition–Firm Performance Relationship*

abstract Prior studies of the relationship between the composition of boards of directors and firm performance offer equivocal results. Drawing on agency and power circulation theories, we attempt to reduce this equivocality by asserting that CEO power moderates the relationship. Specifically, an outside director dominated board is needed to check a powerful CEO, but monitoring by other executives provides sufficient constraints on CEOs with low power. We used event study methodology to test the effects of the interaction between board composition and CEO power on stock market reaction to 73 unexpected CEO deaths. We found support for our theorizing among two of three sources of CEO power. Thus, although regulatory trends increasingly support outside director dominated boards, our findings indicate that this may not always benefit shareholders and that CEO power should be considered when constructing boards.     

Keeping Their Cards Close to Their Chests: How Non‐Delegating CEOs Avoid Forced Career Ends

It is a common belief that CEOs must delegate to be successful. We hesitate to support this generalization and investigate how the distribution of responsibility within top management teams (TMTs) can influence the likelihood of a CEO’s dismissal. Consistent with an agency theory perspective, our results indicate that CEOs may choose not to delegate their responsibilities to other executive TMT members, so as to benefit from an increased information asymmetry vis‐à‐vis the board of directors. Taking the resource‐based view as a complementary theoretical perspective, we find that non‐delegating CEOs benefit from their greater firm‐specific knowledge, which the board of directors considers as a valuable resource that should be retained. Our work also demonstrates that a more intense CEO–TMT interaction weakens the relation between non‐delegation and the likelihood of CEO dismissal. In sum, our research shows that the CEO’s delegation decision does not necessarily lead to a competence distribution that is in the firm's best interest; rather, it reflects a complex interplay between the potentially opportunistic career interests of the CEO, the involvement of other TMT members and the board of directors. © 2015 Wiley Periodicals, Inc.     

Executive pay and performance: the moderating effect of CEO power and governance structure

This paper examines the crucial question of whether chief executive officer (CEO) power and corporate governance (CG) structure can moderate the pay-for-performance sensitivity (PPS) using a large up-to-date South African data-set. Our findings are threefold. First, when direct links between executive pay and performance are examined, we find a positive, but relatively small PPS. Second, our results show that in a context of concentrated ownership and weak board structures; the second-tier agency conflict (director monitoring power and opportunism) is stronger than the first-tier agency problem (CEO power and self-interest). Third, additional analysis suggests that CEO power and CG structure have a moderating effect on the PPS. Specifically, we find that the PPS is higher in firms with more reputable, founding and shareholding CEOs, higher ownership by directors and institutions, and independent nomination and remuneration committees, but lower in firms with larger boards, more powerful and long-tenured CEOs. Overall, our evidence sheds new important theoretical and empirical insights on explaining the PPS with specific focus on the predictions of the optimal contracting and managerial power hypotheses. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, pay, and performance proxies.     

Human Capital and CEO Compensation during Institutional Transitions

Firms appoint CEOs with different types of human capital in order to manage resource dependencies. How CEOs are compensated thus can be conceptualized as a valuation process of how boards view the value of CEOs' human capital. Two types of human capital – international experience and political ties – have emerged as potential drivers of CEO compensation during institutional transitions. But how they impact CEO compensation has remained unclear. We develop a resource dependence‐based, contingency framework to focus on the external and internal factors that enable or constrain human capital to impact CEO compensation. Because of the tremendous regional diversity within China, externally, we focus on the level of marketization of the region in which firms are headquartered. Internally, we pay attention to two corporate governance mechanisms: politically connected outside directors and compensation committee. Data from 10,329 firm‐year observations at 94 per cent of listed firms in China largely support our framework. Overall, our study contributes to resource dependence research by extending this research to the context of institutional transitions with a focus on how human capital impacts CEO compensation.     

Unionization and CEO turnover

This article investigates whether unions have power to influence turnover of poorly performing chief executive officers (CEOs). Employing the transparency coalition framework, we develop hypotheses regarding CEO tenure given unionization, performance-turnover sensitivity, and firm performance following CEO turnover. We use Cox regression and a data set of US firms from 1993 to 2013 to show that CEO turnover is accelerated at firms that unionize. Discontinuity analysis suggests that the relationship is causal. Overall, the results show the significance of unions in the key corporate governance event of CEO turnover and suggest that, though they may proceed independently and for their own traditional goals of good pay and job conditions for their members, unions can be allies of investors and boards or directors when it comes to removing underperforming CEOs.     

What happens to CEO compensation following turnover and succession?

When boards hire CEOs, the board and successor CEO have an opportunity to redesign the predecessor's compensation contract. The CEO's relative bargaining power will influence the outcome of compensation negotiations. Analyzing 508 successions, we find that total compensation of successor CEOs increases by 69% over their predecessor, but the structure of successor compensation is heavily influenced by the predecessors’ contracts. When the board's bargaining power is large, successors have a greater proportion of pay-at-risk and smaller proportion of salary. When the CEO's bargaining power is large, there is a smaller proportion of pay-at-risk and relatively greater proportion of salary.     

CEO Succession Mechanisms,Organizational Context,and Performance: A Socio‐Emotional Wealth Perspective on Family‐Controlled Firms

This article extends the literature on CEO succession and financial performance by addressing corporate owners' mixed motives and desires to protect their interest in being in business. We draw on a Socio‐Emotional Wealth (SEW) perspective to investigate how the choice of one of three succession mechanisms – relay succession, ‘horse races’ among internal CEO candidates, and hiring from outside – may effectively balance trade‐offs between corporate owners' non‐financial SEW motives and the firm's financial performance. We find that implementing one of these succession mechanisms reduces the negative impact that typically characterizes CEO transitions in family firms. We also show that family presence on the board of directors offsets the benefits of having selected these balancing succession mechanisms, in either placing too much emphasis on SEW, or creating negative dynamics that make the chosen succession mechanisms less effective.     

CEO compensation structure following succession: Evidence of optimal incentives with career concerns

To motivate managers to pursue shareholder interests, boards may design management compensation packages to reward managers for good firm performance. However, Gibbons and Murphy (1992) note that when CEOs are far from retirement, they have career concerns. In these cases, Gibbons and Murphy argue that it may not be optimal for their current compensation to be too dependent on firm performance. Testing this proposition, we find that abnormal returns are negatively related to the percentage of performance-based pay of newly hired CEOs when companies announce CEO successions. Since these newly hired CEOs are likely some distance from retirement, we interpret these results as being consistent with Gibbons and Murphy; it may be better to allow newly hired CEOs to be paid in human capital increases from the managerial labor market than to have their current pay too closely related to performance.     

The Sarbanes-Oxley Act and CEO tenure,turnover, and risk aversion

Using a sample of CEO turnover from 1999 to 2005, we find that CEOs become significantly more risk averse following the passage of the Sarbanes-Oxley Act, SOX. Their increased risk aversion may serve as an explanation for why CEO tenure is not significantly shortened and forced CEO turnover is not more likely post-SOX, as we document in this paper. In addition, we provide evidence that financial restatements have some effects on CEO tenure and the probability of forced CEO turnover. This may be due to intensified monitoring activities by the board and the financial press in the post-SOX era, but we cannot contribute all of it to SOX. In some occasions, SOX seems to weaken the effect of board monitoring on CEO tenure and the effect of firm performance on CEO risk aversion. Though the increased monitoring level post-SOX contribute to the increased CEO risk aversion, little impact is found from the SOX-mandated accuracy and transparency of financial reporting.     

Pay Comparability Across and Within UK Boards: An Empirical Analysis of the Cash Pay Awards to CEOs and Other Board Members

Drawing on the literature on social comparison and equity theories, this paper analyses the determinants of, and the relationships between, the cash pay awards of CEOs and other board members for a sample of large UK companies over the period 1992–95. Our results suggest that external labour market and internal (i.e., within board) pay comparisons are important in explaining both CEO and other directors' pay awards. In the case of CEOs, however, there is evidence of an asymmetric adjustment to prior period pay anomalies, whereby the pay of the relatively underpaid executives displays significantly greater sensitivity to external market comparison pay levels. This asymmetric adjustment process results in a 'bidding-up' of average CEO pay relative to other board members over the four year period investigated.     

Executive Pay Matters: Looking Beyond the CEO to Explore Implications of Pay Disparity on Non‐CEO Executive Turnover and Firm Performance

Using a longitudinal data set covering a span of 10 years, we investigate the impact of vertical and horizontal pay disparity on non‐CEO executive turnover and subsequent firm performance. Hypothesizing differential responses to pay disparity depending on a non‐CEO executive's responsibilities, we first categorize non‐CEO executives based on their job demands and their role in the organization (e.g., oversight, divisional). We then explore how pay disparity influences the relationship between executive category and turnover, and how the level of pay disparity impacts the relationship between turnover and firm performance. We find that executive category significantly impacts the likelihood of turnover, and also influences firm performance. Theoretical and practical implications are discussed. © 2015 Wiley Periodicals, Inc.     

Innovating Beyond the Horizon: CEO Career Horizon,Top Management Composition,and R&D Intensity

Decreasing research and development (R&D) can impair the ability of firms to remain innovative in the long run. CEOs have been accused of curtailing R&D investments as they approach expected retirement, yet received findings on R&D investment behaviors of late‐career CEOs are mixed. We argue that one reason for these inconsistent findings could be that traditional approaches overlook the fact that CEOs are not isolated agents in making R&D decisions. We build on the premise that CEOs interact with their top management team (TMT) when shaping R&D strategy and advance a contextualized view of CEO dispositions in their late career stages as being constrained or enabled by their TMT. We hypothesize that some TMT attributes (e.g., tenure and age) may amplify, whereas others (e.g., functional experience and education) may mitigate inclinations to reduce R&D. Our findings, based on a longitudinal sample of 100 US manufacturing firms from 1998 to 2008, provide nuanced insights into how different TMT characteristics influence CEO‐TMT dynamics, with TMT age and TMT tenure playing particularly pronounced roles. We discuss implications of our CEO‐TMT interface approach for theory and practice. © 2015 Wiley Periodicals, Inc.     

Dimensions of CEO–Board Relations

Interactions between CEOs and their boards of directors are a prominent focus of management and strategy research. Despite the extensive literature on CEO–board relations, to date there has been limited integration of theoretical perspectives and measurement schemes. Through an extensive analysis of published studies, we hope to facilitate future research on CEO–board relations. We begin with a comparison of key theoretical approaches. Next, we conduct a content analysis of 51 empirical articles. We find that prior studies have an unbalanced focus regarding both topics and theoretical perspectives, and that there is limited consistency in the choice of measures. Based on this review, we lay out a number of promising directions for future research. We also find that, while there has been progress in international research on CEO–board relations, there are still many unanswered questions regarding the generalizability of governance theories across different geographic settings.     

Board interlocks and greenhouse gas emissions

Using resource dependence theory, we analyze board interlocks, their industry origin, and their relationship to firms' greenhouse gas (GHG) emissions. Interlocks create connections by having board members from one firm sit on other firms' boards, providing an avenue for sharing information and resources to aid in knowledge transfer and capability development. As firms face challenges for improved GHG emissions performance, they may look to their board members' connections to other firms to acquire needed resources. Using a sample of US Standard & Poor's (S&P) 1500 firms for years 2009 to 2018, we find that firms with a greater number of board interlocks achieve lower GHG emissions intensity. We also find that boards for the best performing companies have interlocks in the same industry, in other industries, and with firms leading in GHG emissions intensity, especially for firms in higher environmentally impacting industries, as they face greater emissions challenges.     

CEO compensation, shareholder rights, and corporate governance: An empirical investigation

We investigate whether CEO compensation is influenced by the strength of shareholder rights. Our evidence reveals that CEOs of firms where shareholder rights are weak obtain more favorable compensation. It is also found that higher CEO pay is associated with a higher degree of potential managerial entrenchment. Additionally, CEOs of firms with governance provisions that offer them protection from takeovers enjoy more generous pay. We also examine the change in CEO compensation relative to the change in shareholders' wealth. The evidence shows that when there is an increase in shareholders' wealth, the CEO is able to obtain higher incremental compensation when shareholder rights are weak. On the contrary, when shareholders' wealth falls, there is no corresponding decline in CEO compensation when shareholder rights are weak. Given the empirical evidence, we argue that CEO compensation practices reflect rent expropriation rather than optimal contracting.     

CEO overconfidence and labor investment efficiency

We examine the impact of CEO overconfidence on labor investment efficiency (LIE). The findings suggest that firms with overconfident CEOs are more likely to have lower LIE. The findings are robust to alternative measures of CEO overconfidence and LIE and after accounting for endogeneity and CEO experience, age, managerial ability, high tech industry, and economic recession. Further analysis shows that: i) our findings are not due to the relation between net hiring and contemporaneous non-labor investments and the difference between high- and low-skilled labor, ii) firms with more analyst following, financially constrained firms, and firms located in states with wrongful discharge laws force CEOs to invest more efficiently in labor. In contrast, firms with dominant CEOs or facing high economic policy uncertainty are less efficient in labor investments, iii) firms with overconfident CEOs exhibit higher labor cost stickiness than those of non-overconfident CEOs, and iv) a lower LIE caused by CEO overconfidence has negative impacts on a firm's future profitability.     

Corporate governance and lesbian,gay, bisexual,and transgender‐supportive human resource policies from corporate social responsibility,resource‐based,and agency perspectives

Corporate boards are responsible for ensuring that managers enact policies that are in shareholders' best interests, and managers are responsible for implementing strategies that are not only profitable but also responsive to changing legal and societal demands and the resource needs of the firm. In this paper, we use the theoretical lenses of corporate social responsibility (CSR), the resource‐based view, and agency theory to investigate the relationship between corporate governance structure and the implementation of supportive lesbian, gay, bisexual, and transgender (LGBT) policies. We analyze 10,233 firm‐year observations and 1,594 unique firms, and our results demonstrate that LGBT‐supportive policies are positively associated with firm performance. We also offer new insight into why not all firms adopt such policies. We exploit the passage of the Sarbanes‐Oxley Act as an exogenous shock that increased board independence, and our difference‐in‐difference estimation shows that firms forced to raise board independence in 2002 were less likely to invest in LGBT‐supportive policies. Results suggest that human resource management (HRM) policies can be guided by CSR and resource‐based views in the pursuit of wealth maximization, but agency conflict may also be a concern for external majority boards. We discuss implications for HRM research practice and corporate governance regarding LGBT policies in organizations.     

The Value of CEO Mobility: Contextual Factors That Shape the Impact of Prior CEO Experience on Market Performance and CEO Compensation

This study examines the value that prior CEO experience has for the companies that hire such CEOs—as reflected in the firms’ subsequent market‐based performance—as well as its value for the CEO that possesses this experience—as reflected in his or her initial compensation. While we suggest that shareholders tend not to benefit from firms hiring experienced CEOs, we also argue that particular firm and industry contextual factors that shaped the prior CEO experience help ameliorate this detrimental effect. Regardless, we also suggest that prior CEO experience generally stands to benefit the CEOs, in that it brings them a compensation premium over those CEOs without such prior experience. We tested our hypotheses on a sample of 654 US CEO succession events that occurred between 2001 and 2004 and found broad support for our hypotheses. We close with a discussion of the implications of our findings for future research as well as what they mean for firms hiring experienced CEOs and for CEO careers more generally. © 2015 Wiley Periodicals, Inc.