Are your board members too busy?
Coverage of the 2016 Northern Finance Association Conference
BY Caroline Cakebread | September 15, 2016
We live in a world of constant distraction – from the sound of a new text message to yet another email marked “URGENT!” And while there have been a few studies debunking the value of multi-tasking, a new paper has shown that it could actually affect corporate profitability, at least as it applies to overly stretched directors. In a paper called “Preoccupied Independent Directors,” PhD student Emma Jincheng Zhang from the University of New South Wales identifies a new group of directors who are too busy to effectively do their jobs and monitor effectively. The study looks at empirical data that looks at the nature of director “busy-ness and independence” alongside the priority a director assigns to a directorship and finds that preoccupied directors have a higher meeting absence and “a higher likelihood of relinquishing a relatively less prestigious directorship.”
While that might not be a big surprise to anyone who’s dealt with a board, the impact of overly busy directors on firm performance. Here, Zhang finds that a higher proportion of preoccupied directors leads to lower firm value and poorer M&A performance.
On average, the paper finds, “22% of independent directors are identified to be preoccupied each year.”
Zhang will present her paper at this year’s Northern Finance Association Conference in Mont Tremblant. You can read it here.
You can read the full paper here.