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Upheaval in the boardroom: Outside director public resignations,motivations, and consequences
Authors:Michaël Dewally  Sarah W Peck
Institution:1. UNSW Business School, University of New South Wales, Sydney, NSW 2052, Australia;2. Monash Business School, Monash University, Melbourne, VIC 3800, Australia;1. Queen’s Management School, Queen’s University Belfast, 185 Stranmillis Rd, Belfast BT9 5EE, United Kingdom;2. DCU Business School, Dublin City University, Ireland;3. ESC Rennes School of Business, France
Abstract:We investigate the motives and circumstances surrounding outside directors' decisions to publicly announce their board resignations. Directors who leave “quietly” are in their mid-sixties and professional directors, i.e., retirees, who are retiring entirely from professional life. Directors who announce their resignation are in their mid-fifties and active professionals. Half the time they say they are leaving because they are “busy.” These directors leave from firms with some weakness in their performance, but with no overt manifestations of cronyism such as excessive compensation of either the CEO or directors. The other half of the time directors leave while publicly criticizing the firm. These directors are finance professionals who were members of the audit and compensation committees. They resign from firms with weak boards and financial performance with evidence that managers have manipulated earnings upwards. Public criticism appears to pressure these boards to make management changes associated with improved stock price performance. We conclude that while such public resignations are motivated by the reputational concerns of directors, they can act as a disciplining device for poor board performance.
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