Recent survey data show that 24% of independent directors in Russel 3,000 have continuously served in the same firm for 15 years or more. On a sample of S&P 1500 over the period 1998-2012 we show that this is largely determined by only one director with an abnormally long tenure. When one independent director has served on the board for 20 years or more there are positive effects on financial performance. This contribution unfolds along different channels. Long tenured directors protect the firm and other board members by reducing the risk of corporate scandals. Extended tenures allow directors to acquire more information even when the cost of information acquisition is high. Also, we show that long-tenured independent directors are highly skilled individuals that accumulate knowledge valuable to the companies they serve in. Our results have implications on the ongoing debate on setting tenure limits for outside directors and suggest that a single rule for all may not be optimal.
Til Death Do Us Part: The Long Tenured Directors Puzzle / Ferrari, Mascia. - (2016). (Intervento presentato al convegno Annual meeting American Accounting association tenutosi a New York nel August 8, 2016).
Til Death Do Us Part: The Long Tenured Directors Puzzle.
FERRARI, Mascia
2016
Abstract
Recent survey data show that 24% of independent directors in Russel 3,000 have continuously served in the same firm for 15 years or more. On a sample of S&P 1500 over the period 1998-2012 we show that this is largely determined by only one director with an abnormally long tenure. When one independent director has served on the board for 20 years or more there are positive effects on financial performance. This contribution unfolds along different channels. Long tenured directors protect the firm and other board members by reducing the risk of corporate scandals. Extended tenures allow directors to acquire more information even when the cost of information acquisition is high. Also, we show that long-tenured independent directors are highly skilled individuals that accumulate knowledge valuable to the companies they serve in. Our results have implications on the ongoing debate on setting tenure limits for outside directors and suggest that a single rule for all may not be optimal.
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