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How Do Boards Know When to Fire the Ceo—and Does It Pay?
| Content Provider | Semantic Scholar |
|---|---|
| Author | Martin, John A. Combs, James G. |
| Copyright Year | 2014 |
| Abstract | For decades, boards of directors have received increased scrutiny from researchers and the media. Boards are elected by shareholders to hire top managers, incentivize them, monitor their decisions and actions, and, when necessary, replace them. Researchers have spent a lot of time and effort trying to understand the conditions that allow boards to best perform these duties. Research shows, for example, that boards generally do a poor job tying CEO pay to fi rm performance without the benefi t of a large shareholder to press the issue (Gomez-Mejia, Tosi, & Hinkin, 1987). Studies also show that boards fi re CEOs in response to poor fi rm performance, especially when the board is full of independent directors who are not beholden to management. But sometimes performance falls and the CEO stays, even when there is a large shareholder and an independent board. So it seems likely that board members look at more than the “hard” numbers to make decisions about CEOs. What that may be, however, remains a mystery because the information that boards use to judge CEOs is cloaked in secrecy and locked in a “black box” away from researchers. That is until recently when a group of researchers gained access to the “black box”—not to the live board deliberations, mind you, but to previously confi dential information. Like sleuths chasing clues, the research team of Francesca Cornelli (London Business School), Zbigniew Kominek (European Bank of Reconstruction and Development), and Alexander Ljungqvist (New York University) gained access to unique reports containing investors' and board members' thoughts about CEO intentions and competence. This gave the researchers access to rich “soft” information that could be compared to “hard” fi nancial numbers. Better yet, these reports were about fi rms from former communist countries during their transition to a more market-oriented economy, so the data stretch across a time when these governments were changing the rules that govern who can fi re a CEO. This allowed researchers to go beyond asking what kind of information board members use to fi re CEOs to include asking how governance reforms affect investors' ability to act on different kinds of information. It also allowed them to ask and offer a more defi nitive answer as to whether or not it pays to replace the CEO. |
| Starting Page | 7 |
| Ending Page | 9 |
| Page Count | 3 |
| File Format | PDF HTM / HTML |
| DOI | 10.5465/amp.2014.0024 |
| Volume Number | 28 |
| Alternate Webpage(s) | http://aom.org/Publications/AMP/Research-Briefs/How-do-Boards-Know-when-to-Fire-the-CEO---And-Does-it-Pay-.aspx |
| Alternate Webpage(s) | https://doi.org/10.5465/amp.2014.0024 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
