Busy Directors and Shareholder Satisfaction

• In Event: Corporate Directors

Abstract

Prior research has examined the firm-level performance implications of corporate boards that have a large proportion of “busy” directors, with mixed findings. Firm-level analysis, however, masks important heterogeneity in director time constraints. We develop and validate shareholder voting as a proxy for shareholders’ satisfaction with various types of busy directors. We provide robust evidence that busy directors receive lower shareholder satisfaction than non-busy directors, but the effects vary substantially depending on the individual directors’ external time constraints. Specifically, the negative relation between shareholder satisfaction and busyness is smaller for retired busy directors, and is larger for busy directors who are full-time executives, who sit on boards where fiscal-year-ends cluster in the same month, and who sit on many external board committees. Shareholders also react negatively when a director has a substantial major increase in external time demands, but only when the increase is non-temporary. Our analyses suggest that shareholder voting reflects a sophisticated understanding of the heterogeneous external time commitments of busy directors.

Authors

• Kevin Chen, University of Pennsylvania

• Wayne Guay, University of Pennsylvania