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Whistle-Blowers on the Board? The Role of Independent Directors in Cartel Prosecutions

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  • Murillo Campello
  • Daniel Ferrés
  • Gaizka Ormazabal

Abstract

Market reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors on their boards. Independent directors serving on cartel-indicted firms are penalized by losing board seats and vote support at other firms where they serve. Notably, firms with more independent directors are more likely to cooperate with prosecutors through leniency programs. They are also more likely to dismiss chief executive officers after cartel indictments. Our study shows that cartel prosecution imposes significant, market-based personal costs on independent directors and that they take actions to mitigate those costs. Crompton is a prime example of a company whose independent board of directors decided to leave no stone unturned in its commitment to investigate, identify and report antitrust violations…. [T]he board's strategy resulted in the company receiving an extraordinary reduction in its rubber chemicals fine…. Crompton's early cooperation allowed the Division to conserve and focus its resources and to immediately put additional pressure on other subject companies and individuals to cooperate. (Hammond 2006)

Suggested Citation

  • Murillo Campello & Daniel Ferrés & Gaizka Ormazabal, 2017. "Whistle-Blowers on the Board? The Role of Independent Directors in Cartel Prosecutions," Journal of Law and Economics, University of Chicago Press, vol. 60(2), pages 241-268.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/694826
    DOI: 10.1086/694826
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    2. Shweta Mehrotra & R. K. Mishra & V. Srikanth & Govind Prasad Tiwari & E. V. Mahesh Kumar, 2020. "State of Whistleblowing Research: A Thematic Analysis," FIIB Business Review, , vol. 9(2), pages 133-148, June.
    3. Xiaomeng Charlene Chen & Ka Wai Choi & Sue Wright & Hai Wu, 2023. "The effectiveness of sanctions on disclosure regulation: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 3841-3872, December.
    4. Lee, Hwaryung, 2016. "The Retention of Underperforming CEOs and the Implications on Collusion – Controlling Management and Preventing Collusion by Strengthening the Independence of the Board," KDI Focus 77, Korea Development Institute (KDI).
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    6. Amore, Mario Daniele & Marzano, Riccardo, 2019. "Family Ownership and Antitrust Violations," CEPR Discussion Papers 14018, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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