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Corp. Governance and CSR > Board of Directors > Flashcards

Board of Directors Flashcards

1
Q

What is the role of the board of directors?

A

Oversee management, approve major decisions, measure performance, and hire/fire executives.

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2
Q

What are the board’s primary objectives?

A

Provide managerial incentives and monitor misbehavior.

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3
Q

What is the difference between one-tier and two-tier boards?

A

One-tier: combines executives and non-executives in one body.
Two-tier: separates supervisory and management boards.

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4
Q

What is CEO-Chairman duality?

A

When the CEO also serves as the chairman of the board.

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5
Q

What are the benefits of CEO-Chairman duality?

A

Strong leadership and efficient decision-making.

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6
Q

What are the drawbacks of CEO-Chairman duality?

A

Reduces independence, increases entrenchment, and weakens accountability.

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7
Q

What defines conventional board independence?

A

Directors without financial or familial ties to the CEO or firm.

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8
Q

How do social ties affect board independence?

A

Social ties reduce monitoring effectiveness.

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9
Q

What percentage of Fortune 100 boards are socially independent?

A

62%, compared to 87% conventionally independent.

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10
Q

What are the effects of socially connected directors?

A

Weaker pay-performance and turnover-performance sensitivity for CEOs.

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11
Q

What are the advantages of small boards?

A

Faster decisions, less coordination friction, and reduced free-riding.

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12
Q

What are the advantages of large boards?

A

Broader expertise, better monitoring and greater diversity.

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13
Q

How does forced board expansion affect performance?

A

It decreases ROA and Tobin’s Q, reducing board effectiveness.

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14
Q

Why is board composition endogenous?

A

Firm performance influences board structure, complicating causal analysis.

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15
Q

How does poor performance affect board size?

A

Poorly performing firms often expand boards to add expertise.

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16
Q

What was Norway’s board gender quota?

A

Mandated 40% female board representation by 2008.

17
Q

How did the market react to Norway’s quota announcement?

A

Stock prices dropped, especially for firms with no prior female directors.

18
Q

Wha were the long-term impacts of Norway’s quota?

A

Lower Tobin’s Q, higher risk-taking and reduced cash holdings.

19
Q

How did post-quota boards differ from pre-quota boards?

A

New directors were younger and less experienced.

20
Q

Why were some firms more affected by the quota?

A

Firms with the largest adjustments faced the greatest constraints, leading to performance declines.

21
Q

What are the drawbacks of excessively large boards?

A

Coordination inefficiencies, free-riding and slower decision-making.

22
Q

What is the main challenge in studying board effectiveness?

A

Distinguishing whether boards improve firm value or high-value firms attract better boards.

23
Q

What did the German board size regulation reveal?

A

Forcing firms to add directors decreased ROA and Tobin’s Q.

24
Q

What did the Norway gender quota reveal about firm risk?

A

Post-quota boards increased risk-taking, with higher leverage and acquisition costs.

25
Q

Why is board independence critical?

A

It ensures objective oversight, reducing the risk of CEO entrenchment.

26
Q

How does social independence differ from conventional independence?

A

Social independence excludes directors with personal connections to the CEO.

27
Q

What is the ideal board size?

A

A size balancing diverse expertise and efficient decision-making, context-dependent.

28
Q

How do quotas impact board dynamics?

A

Quotas can drive diversity but may disrupt established practices and reduce firm value.

29
Q

Why do large boards often struggle?

A

Due to free-riding and slower, less cohesive decision-making processes.

30
Q

How can board effectiveness be improved?

A

By balancing independence, size, and diversity while ensuring accountability.

Corp. Governance and CSR (16 decks)

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