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Deadlock on the Board

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  • Donaldson, Jason
  • Piacentino, Giorgia
  • Malenko, Nadya

Abstract

We develop a dynamic model of board decision making. We show that directors may knowingly retain the policy they all think is the worst just because they fear they may disagree about what policy is best in the future—the fear of deadlock begets deadlock. Board diversity can exacerbate deadlock. Hence, shareholders may optimally appoint a biased director to avoid deadlock. On the other hand, the CEO may appoint unbiased directors, or even directors biased against him, to create deadlock and thereby entrench himself. Still, shareholders may optimally give the CEO some power to appoint directors. Our theory thus gives a new explanation for CEO entrenchment. It also gives a new perspective on director tenure, staggered boards, and short-termism.

Suggested Citation

  • Donaldson, Jason & Piacentino, Giorgia & Malenko, Nadya, 2017. "Deadlock on the Board," CEPR Discussion Papers 12503, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12503
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    2. 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.

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    More about this item

    Keywords

    Corporate boards; Deadlock; Entrenchment; Ceo turnover; Director elections;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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