The Market Hates a Monitor: Evidence of the Adverse Selection of Independent Directors Who Oust a CEO

Mary-Hunter McDonnell and Brayden King of the Northwestern University School of Law, and theNorthwestern University School of Management, have produceda very revealing (if predictible) research paper with the above title.

(Conclusion of Working Paper – last page)

The findings in this paper provide robust evidence that, even in this era of investor capitalism and the rise of the formally independent director, symbols of elite affiliations and pro-managerialist selection criteria continue to undergird the market for corporate directors, especially among America’s larger and more reputable organizations. In a longitudinal study that tracks a decade in the careers of a cohort of independent directors, we have found evidence that directors who commit the cardinal managerialist sin by ousting a corporate CEO suffer multi-faceted adverse consequences in the market for corporate directors. They are likely to win seats within significantly fewer boards and the boards that do recruit them are likely to be significantly smaller and less reputable than those that recruit their peers.

(Click on Download Asset)

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.


  1. These totally predictible results the whole reason why the US needs to ensure meaningful access to the proxy.

    Is it not obvious that when they select director nominees, nomination committees and boards are subtly influenced by managers – or by the social club sourcing techniques they use,  or the fact that they focus on other CEOs as targets etc. –  to agree upon candidates that are unlikely to terminate the CEO?  Then again, they can also use the guise of avoiding candidates that may be "disruptive" for having been involved in terminations in the past.   

    Conversely, knowing there will be adverse consequences from firing a CEO but not from not from sitting on Enron's board (without firing anyone) until the very end, independent directors can only conclude one thing: it is best to lay low as long as you can.  

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