Another Look At Director Independence
Source: University of Colorado
Despite the widely held view that director independence improves corporate governance, few studies find that board composition affects firm performance or CEO compensation. In this paper the authors compare the effect of two different measures of board composition on firm performance and excessive CEO pay. They use both the traditional definition of independent outside director and a second, more behavioral, definition that excludes problem directors (directors who in prior years were on the boards of companies that failed, were involved in scandals or awarded CEOs with excessive pay packages). Removing the problem or low quality directors provides a rough measure of outside director quality.