We show that political polarization among directors negatively affects corporate board effectiveness by reducing forced CEO turnover-performance sensitivity. Our results are more pronounced in presidential election years and for firms with more monitoring and advising needs. Polarization also increases the departure likelihood for directors who are ideologically distant from the rest of the board, making boards more politically homogeneous over time. Finally, we show that polarization in the boardroom lowers firms' investment- Q sensitivity and Environmental, Social and Governance (ESG) performance. Our findings highlight the real economic cost of political polarization.

In the finance industry, risk compliance has become an important issue after numerous policy violations resulting in significant costs for financial institutions and society as a whole. We run a lab-in-the-field experiment with 269 finance professionals, to investigate the effects of financial incentives and workplace culture on risk compliance. Relative to variable remuneration (linked to expected profits), fixed remuneration increases the proportion of people complying by as much as 25.1 percentage points. This is achieved with no diminution in productivity. Relative to a profit-focused workplace culture, a risk-focused workplace culture increases the proportion of people complying by 16.3 percentage points.

Financial services misconduct is a concern for many stakeholders and deferred variable remuneration has been proposed as an antidote. The implications for attracting/retaining productive individuals are unknown. This study investigates deferred payment mechanisms through experiments in student and professional samples, taking account of self-selection effects. We confirm that the introduction of deferrals would reduce misconduct through better monitoring. While some individuals eschew deferred payment, even in the presence of a deferral premium, productive individuals are under-represented in this group. Productive individuals are more likely to select deferred variable remuneration, so productivity outcomes are equal to or superior to alternative treatments.