directors

We investigate how firms select directors from other company boards. Our results indicate that firms select directors that fit into the current pool of directors.

We examine directors’ skill diversity, through Regulation S-K’s requirements, and report that skill diversity varies across boards. Greater commonality in skill sets correlates with improved firm performance.

In 2009, the Securities and Exchange Commission (SEC) reformed shareholder voting by eliminating uninstructed broker voting in director elections. We use this reform as a quasi-natural experiment to assess the value of shareholder empowerment. Using different control groups and various cross-sectional tests, we find that the reform did not increase average equity values.

Companies using search firms for board members pay CEOs higher salaries and total compensations. Such companies are less likely to fire CEOs after poor performance and more likely to engage in M&A with low returns. Using geographic distance as an instrument, we find search firm-identified directors negatively impact firm performance and governance.

We analyze the SEC’s proxy access rule and its impact on shareholder wealth focusing on firms’ governance characteristics. Firms with a high probability of being targeted have more negative returns while independent directors and non-cash compensation positively influence the market’s reaction. Smaller boards have less negative impact, suggesting the rule isn’t seen as value-enhancing by marginal shareholders.

We examine SEC’s director nomination rule’s wealth effects. Results contradict shareholder empowerment creating value: Abnormal returns are negative for events increasing passage probability.