Time is of the Essence! Retired Independent Directors’ Contributions to Board Effectiveness

Pamela Brandes, Ravi Dharwadkar, Jonathan F. Ross, Linna Shi

Research output: Contribution to journalArticlepeer-review

Abstract

Institutional investors, policy makers, and researchers have advocated for greater director independence in hopes of improving corporate governance and discouraging unethical behaviors such as corporate frauds, accounting irregularities, and other organizational failures. However, increasing demands upon directors and sitting CEOs, as well as constraints on the number of boards on which they can serve, has resulted in a dramatic increase in the use of retired independent directors (“RIDs”). Compared to other directors with full-time job demands, we argue that RIDs (who lack full-time primary employment) have lesser time constraints and greater attentional capacities with which to discharge their responsibilities, thereby improving overall board “bandwidth.” Using S&P 1500 firms for the period of 2000–2012, we find that enhanced board bandwidth associated with an increased proportion of RIDs on the board relates to greater resource provisioning through reducing costs of capital, improved monitoring through reducing disclosure-related weaknesses, and better accounting and market performance. We thereby advance traditional board bandwidth research by contemplating the available time that independent directors would have by virtue of being retired (i.e., whether a director lacks a “day job”) and relating this to board effectiveness.

Original languageEnglish (US)
JournalJournal of Business Ethics
DOIs
StateAccepted/In press - 2021

Keywords

  • Boards
  • Corporate governance
  • Retired independent directors

ASJC Scopus subject areas

  • Business and International Management
  • Business, Management and Accounting(all)
  • Arts and Humanities (miscellaneous)
  • Economics and Econometrics
  • Law

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