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Deadlock on the Board

Author

Listed:
  • Jason Roderick Donaldson
  • Nadya Malenko
  • Giorgia Piacentino
  • Itay Goldstein

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.

Suggested Citation

  • Jason Roderick Donaldson & Nadya Malenko & Giorgia Piacentino & Itay Goldstein, 2020. "Deadlock on the Board," The Review of Financial Studies, Society for Financial Studies, vol. 33(10), pages 4445-4488.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:10:p:4445-4488.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa006
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    Cited by:

    1. Pierre Chaigneau & Nicolas Sahuguet, 2023. "The Complementarity Between Signal Informativeness and Monitoring," Journal of Accounting Research, Wiley Blackwell, vol. 61(1), pages 141-185, March.
    2. Fos, Vyacheslav & Kempf, Elisabeth & Tsoutsoura, Margarita, 2021. "The Political Polarization of Corporate America," Working Papers 313, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    3. Marius Guenzel & Ulrike Malmendier, 2020. "Behavioral Corporate Finance: The Life Cycle of a CEO Career," NBER Working Papers 27635, National Bureau of Economic Research, Inc.
    4. Malmendier, Ulrike M. & Guenzel, Marius, 2020. "Behavioral Corporate Finance: The Life Cycle of a CEO Career," CEPR Discussion Papers 15103, C.E.P.R. Discussion Papers.
    5. Corum, Adrian Aycan, 2021. "Fighting Fire with Fire: Optimality of Value Destruction to Mitigate Short-Termism," OSF Preprints xhwmg, Center for Open Science.

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