FINANCE CLASSROOM

Here's a pretty interesting governance piece, highlighted recently on the Wall Street Journal's Dealbook: Chief Executives Beware- Analysts May Seal Your Fate:

An academic study found corporate boards are more likely to be influenced by the recommendations of equity analysts following the 2002 rule change that separated the analysts from investment bankers. The study conducted by professors at the Paul Merage School of Business at the University of California in Irvine and at the Jesse H. Jones Graduate School of Management at Rice University in Houston, found that this increase in trust in analysts meant that boards are more likely than in the past to fire an under-performing chief executive based in part on analyst recommendations.

The paper is titled CEO Dismissal: The Role of Investment Analysts as an External Control Mechanism, and it's authored by Margarethe Wiersema (of UC-Irvine) and Yan Zhang (of Rice University). It's a pretty good example of the way that regulatory changes affect the impact of various monitoring agents. My take on it is that post SOX, boards are much more likely to "yank the cord" on CEOs following a whole host of "bad news" events (earnings disappointments, product recalls, etc...). I bet that'd make for an interesting research topic for someone (offered free of charge - I'm not going to pursue it).

You can read a PDF of a working paper version of paper here.

Whether you're a researcher or practitioner in the field of corporate governance, the annual Korn-Ferry Survey of boards of directors is a must read (I even cited an earlier version in my dissertation years ago). Here's a bit from the overview in the beginning of the survey

...It is more work and less play for today’s corporate directors, and, perhaps surprisingly, they seem to like it that way. A high level of job satisfaction is one of the trends identified in the 34th Annual Korn/Ferry International Board of Directors Study, which also found that directors serve on fewer boards but work longer hours.

In addition, boards are actually smaller today. According to analysis of information reported in the proxies of 891 FORTUNE 1000 companies, we found that boards average 10 directors in size, with only two being full-time company employees. Women and minorities have been very successful in achieving directorships,
when viewed historically over three decades. But, the proxy data reflects that their numbers per board remain small and growth appears stalled.

Our survey shows that the placement of restrictions on the number of boards on which a director may serve remains fairly high in North America and Europe, and, perhaps not surprisingly given this fact, we found a loosening of mandatory retirement rules.

The image of a director’s job also may be improving. Recruitment remains challenging, especially for companies in North America, but boards appear to be having greater success recruiting directors with specialized skills.

Read the whole thing (for free) here.