The adoption of supermajority-independent boards in the post-Enron era

Abstract

Combining insights from the agency theory and sociopolitical perspectives, this study examines the extent to which factors such as ownership structure, CEO power, and firm performance influence firms' adoption of board independent reform advocated by shareholder activists. Event history analysis using extensive data on 1083 Standard & Poor's 1500 companies from January 2002 to December 2004 shows that firms with more powerful CEO were less likely to adopt supermajority-independent boards, while both poorly performing firms and large firms were more likely to adopt such board structure. We also find that higher institutional blockholder ownership increased the likelihood of the adoption in firms managed by less powerful CEOs, while external non-institutional blockholder ownership decreased the likelihood of the adoption.