In Defense of Boards

16 Pages Posted: 15 Aug 2008

See all articles by Silvia Dominguez-Martinez

Silvia Dominguez-Martinez

University of Amsterdam - Amsterdam School of Economics (ASE)

Otto H. Swank

Erasmus University Rotterdam - Department of Economics; Tinbergen Institute Rotterdam (TIR)

Bauke Visser

Erasmus University Rotterdam - Department of Economics; Tinbergen Institute Rotterdam (TIR)

Abstract

It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behavior and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. We analyze the nature of the retention contract a board uses to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials, and that the link between bad performance and dismissal is weak.

Suggested Citation

Dominguez-Martinez, Silvia and Swank, Otto H. and Visser, Bauke, In Defense of Boards. Journal of Economics & Management Strategy, Vol. 17, Issue 3, pp. 667-682, Fall 2008, Available at SSRN: https://ssrn.com/abstract=1227205 or http://dx.doi.org/10.1111/j.1530-9134.2008.00190.x

Silvia Dominguez-Martinez (Contact Author)

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Roetersstraat 11
Amsterdam, North Holland 1018 WB
Netherlands

Otto H. Swank

Erasmus University Rotterdam - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 4081448 (Phone)
+31 10 2120551 (Fax)

Bauke Visser

Erasmus University Rotterdam - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+ 31 (0)10 40 81449 (81441) (Phone)
+ 31 (0)10 40 89149 (Fax)

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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