Wednesday, August 24, 2011

Keep CEOs off outside boards

Should CEOs take outside mandates? For share holders the question boils down to firm performance. If this allows the CEO to peak in management practices at better places or even collude, then this is good for the bottom line. If the CEO dilutes his efforts by being unfaithful, then this hurts the company. In the end, we needs to see what the data says.

Benjamin Balsmeier, Achim Buchwald and Heiko Peters look at CEOs from the 100 largest German firms in a panel dataset. And it does not look good. Firms with CEOS directors elsewhere have a return on assets over one percentage point lower. You would think that this should have consequences. Yet, such CEOs are less likely to be ousted than loyal ones. This may corroborate the entrenchment hypothesis, as I discussed before. The lack of competition at top clearly shows.

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