Another interesting (if unsurprising) paper — at least for way over-committed VCs and their long-suffering investees — from the current issue of the Journal of Finance. I sent it some startup CEOs I know and told ’em to bring it to their next board meeting.
Are Busy Boards Effective Monitors?
ELIEZER M. FICH and ANIL SHIVDASANI
Firms with busy boards, those in which a majority of outside directors hold three or more directorships, are associated with weak corporate governance. These firms exhibit lower market-to-book ratios, weaker profitability, and lower sensitivity of CEO turnover to firm performance. Independent but busy boards display CEO turnover-performance sensitivities indistinguishable from those of inside-dominated boards. Departures of busy outside directors generate positive abnormal returns (ARs). When directors become busy as a result of acquiring an additional directorship, other companies in which they hold board seats experience negative ARs. Busy outside directors are more likely to depart boards following poor performance.