Want to Fix Your Startup? Fire Your Busiest Board Member

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.

Related posts:

  1. The Dark Side of Social Networks
  2. VCs, PIPEs and the Martini Model
  3. Nortel’s Owens Never Bores of Boards
  4. How Win Friends & Influence Board Members
  5. Doing the CEO/Chairman Split

Comments

  1. Ben Hyde says:

    I certainly wouldn’t expect the connectors on the board to be good monitors; you want mavins for that.