Review of Financial Studies Vol. 33 No. 10 2020

Deadlock on the Board

Jason Roderick Donaldson¹; Nadya Malenko²; Giorgia Piacentino³

¹ Washington University in St. Louis and CEPR · ² Boston College, CEPR, and ECGI · ³ Columbia University, CEPR, and NBER

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.

DOI

10.1093/rfs/hhaa006

Volume

33

Issue

10

Pages

4445-4488

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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