Under Pressure: The Increasing Turnover-Performance Sensitivity for Corporate Directors
Thomas Bates1, David Becher2, Jared Wilson3
1Arizona State University; 2Drexel University; 3Indiana University
This paper examines the relation between firm performance and turnover for the directors of public companies over the last two decades. In the mid-2000s, firms with stock price performance in the lowest quartile of the sample exhibit a 15% greater likelihood of director turnover. By the late-2010s, this figure nearly doubles to 28%, a probability that is equivalent to the turnover-performance sensitivity (TPS) for CEOs. We document several factors that contribute to the increase in director TPS over time including trends towards independent board chairs and nominating committees. In addition, the increase in director TPS is most pronounced for firms with a lower local supply of prospective replacement directors and for firms with attentive institutional investors.