We survey the evidence on the relationship between board composition and firm performance. Boards of directors of American public companies that have a majority of independent directors behave differently, in a number of ways, than boards without such a majority. Some of these differences appear to increase firm value; others may decrease firm value. Overall, within the range of board compositions present today in large public companies, there is no convincing evidence that greater board independence correlates with greater firm profitability or faster growth. In particular, there is no empirical support for current proposals that firms should have "supermajority-independent boards " with only one or two inside directors. To the contrary, there is some evidence that firms with supermajority-independent boards are less profitable than other firms. This suggests that it may be useful for firms to have a moderate number of inside directors (say three to five on an average-sized eleven member board). We offer some possible explanations for these results, based on board dynamics, the informational advantages possessed by inside (and, often, affiliated) directors, and the value of interaction between different types of directors who bring different strengths to the board. published in

Pension funds have pursued an active role in corporate governance, although some question their effectiveness and motivations. We examine the impact and motivation of pension fund activism by studying the shareholder proposals of the largest, most active funds from 1987 through 1993. We find significant heterogeneity across funds in activism objectives, tactics, and impact on target firms, consistent with differing investment strategies. We find the funds are more successful at monitoring and promoting change in target firms than previously recognized. We also find no evidence to support motivations other than

We examine the equity ownership structure and board composition of a sample of 583 "rms over the ten-year period 1983}1992. Our evidence suggests that a substantial fraction of "rms exhibit large changes in ownership and board structure in any given year. These changes are correlated with one another and are not reversed in subsequent years. Ownership and board changes are strongly related to top executive turnover, prior stock price performance, and corporate control threats, but only weakly related to changes in "rm-speci"c determinants of ownership and board structure. Furthermore, large ownership changes are typically preceded by economic shocks and followed by asset restructurings. � 1999 Elsevier Science S.A. All rights reserved.

This paper uses a unique dataset from Denmark to investigate the impact of family characteristics in corporate decision making, and the consequences of these decisions on firm performance. We focus on the decision to appoint either a family or an external chief executive officer (CEO). The paper uses variation in CEO succession decisions that result from the gender of a departing CEO’s first-born child. This is a plausible instrumental variable (IV) as male firstchild firms are more likely to pass on control to a family CEO relative to female first-child firms, but the gender of a first child is unlikely to affect firms ’ outcomes. We find that family successions have a large negative causal impact on firm performance: operating profitability on assets falls by at least four percentage points around CEO transitions. Our IV estimates are significantly larger than those obtained using ordinary least squares. Furthermore, we show that family-CEO underperformance is particularly large for firms in high-growth industries and for relatively large firms. Overall, the empirical results demonstrate that professional non-family CEOs provide extremely valuable services to the organizations they head.

in the 10th Workshop on Corporate Governance and Investment for useful comments. The paper was written while Ken

We present evidence that busy outside directors are associated with weak corporate governance based on a sample of U.S. industrial firms from 1989 to 1995. When a majority of outside directors serve on three or more boards, firms exhibit lower market-to-book ratios as well as weaker operating profitability. Firms are also more likely to replace busy outside directors following poor performance. We show that when a majority of outside directors are busy, the sensitivity of CEO turnover to performance is significantly lower than when a majority of outside directors are not busy. Analysis of announcements of board changes confirms that investors applaud departures of busy outside directors, and this pattern is pronounced for firms where the departure results in the majority of the remaining outside directors being not busy.

governance. Berle and Means focused on the separation of ownership and control in large corporations where multiple layers of salaried managers coordinated production and distribution. What is perhaps less well recognized about their work is that the large public corporation had only recently become the dominant way of organizing production in the United States (see Chandler (1977)). The book was therefore prescient in that it recognized this way of organizing the enterprise would be lasting, and hence it was important to study how they would be governed. At that time, the archetypical public firm was General Motors. The enduring fascination with this firm has been, in part, because of its size and the industry it is in, and, in part, because it was the focus of two of the best known managerial books, Alfred Sloan's My Years with General Motors and Peter Drucker's The Concept of the Corporation. GM was, and in large part still is, a vertically integrated firm, which owned and controlled a large amount of highly specialized inanimate assets, ranging from plant and2 machinery to world famous brand names. In the past, as we will argue, these assets were

This paper describes board size and composition and investigates the role of venture capital in a sample of 1,116 IPO firms. First, venture capital-backed firms have fewer insider and instrumental directors and more independent outsiders. Second, we consider board composition as the outcome of a bargain between the CEO and outside shareholders. Representation of independent outsiders on the board decreases with the power of the CEO- tenure and voting control- and increases with the power of outside investors- venture capital backing and venture firm reputation. Third, within the sample of venture financed firms and also consistent with a bargaining model, the probability that a founder remains as CEO is decreasing in venture firm reputation. Finally, we examine the influence of venture capital backing and board structure on firm outcomes in the ten years after the IPO.

Several non-mutually exclusive theories have been proposed to explain how corporate boards are structured. In this paper we group these theories into three hypotheses and test them empirically. The first hypothesis is that boards are shaped by the scope and complexity of the organization they are designed to oversee. Consistent with this hypothesis, we find that board size and the fraction of independent outsiders are positively related to firm size, age, and diversification. The second hypothesis is that board composition is determined through negotiations between the CEO and outside board members. Consistent with this view, we find that the fraction of independent outsiders is negatively related to contemporaneous and lagged measures of the CEO's power. We also find support for the third hypothesis, which is that boards are shaped by the opportunities for private benefits and monitoring costs afforded by the firm's unique business environment. These results indicate that corporate boards adjust to the firm's specific advising and monitoring requirements, and undermine notions that one-size-fitsall remedies can improve board and firm performance. *This paper is preliminary and incomplete. Please do not quote without the authors'

This paper examines the effects of venture capital backing on the corporate governance of the firm following the IPO. I conduct three independent sets of tests examining effectively how governance and monitoring might differ for venture- and non-venture-backed firms. First, I find that venture-backed firms have lower earnings management, as measured by the level of their discretionary accounting accruals, than similar nonventure-backed firms. Second, venture-backed firms experience a significantly higher wealth effect upon the announcement of the adoption of a shareholder rights agreement (poison pill) than non-venture-backed