Deadlock on the Board

Review of Financial Studies, Vol. 33, No. 10, October 2020

European Corporate Governance Institute – Finance Working Paper No. 645/2019

58 Pages Posted: 7 Dec 2017 Last revised: 29 Sep 2020

See all articles by Jason Donaldson

Jason Donaldson

Washington University in St. Louis

Nadya Malenko

Boston College, Carroll School of Management; National Bureau of Economic Research (NBER); Finance Theory Group (FTG); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Giorgia Piacentino

Columbia University

Multiple version iconThere are 3 versions of this paper

Date Written: October 1, 2020

Abstract

We develop a dynamic model of board decision-making akin to dynamic voting models in the political economy literature. We show a board could retain a policy all directors agree is worse than an available alternative. Thus, directors may retain a CEO they agree is bad -- deadlocked boards lead to entrenched CEOs. We explore how to compose boards and appoint directors to mitigate deadlock. We find board diversity and long director tenure can exacerbate deadlock. We rationalize why CEOs and incumbent directors have power to appoint new directors: to avoid deadlock. Our model speaks to short-termism, staggered boards, and proxy access.

Keywords: board of directors, dynamic decision-making, deadlock, entrenchment, director elections, CEO turnover, diversity, tenure, staggered boards

JEL Classification: D72, G34

Suggested Citation

Donaldson, Jason and Malenko, Nadya and Piacentino, Giorgia, Deadlock on the Board (October 1, 2020). Review of Financial Studies, Vol. 33, No. 10, October 2020, European Corporate Governance Institute – Finance Working Paper No. 645/2019, Available at SSRN: https://ssrn.com/abstract=3081638 or http://dx.doi.org/10.2139/ssrn.3081638

Jason Donaldson

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Nadya Malenko (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Finance Theory Group (FTG) ( email )

United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Giorgia Piacentino

Columbia University ( email )

New York

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
581
Abstract Views
4,561
Rank
81,820
PlumX Metrics