Shareholder Democracy in Play: Career Consequences of Proxy Contests
65 Pages Posted: 18 Jul 2013 Last revised: 28 Jan 2015
Date Written: October 21, 2013
This paper shows that proxy contests have a significant adverse effect on careers of incumbent directors. Following a proxy contest, directors experience a significant decline in number of directorships not only in the targeted company, but also in other non-targeted companies. The results are established using the universe of all proxy contests during 1996-2010. To establish that this effect of proxy contests is causal, we use within-firm variation in directors' exposure to proxy contests and exploit the predetermined schedule of staggered boards that only allows a fraction of directors to be nominated for election every year. We find that nominated directors relative to non-nominated ones lose 45% more seats on other boards. We discuss that this pattern can be expected if proxy contest mechanism imposes a significant career cost on incumbent directors.
Keywords: Proxy contests, Directors, Corporate governance, Agency problem
JEL Classification: G34, G38
Suggested Citation: Suggested Citation