Do Director Elections Matter?
Margarita Tsoutsoura, University of Chicago Booth
Using CEO turnover as a laboratory, we examine the implications of staggered boards on corporate governance. With staggered boards, directors are not elected every year by shareholders. Some directors also sit on multiple boards. We construct a new variable to capture these features—time to election which is the average number of years before a director is up for election across boards she sits on. We find that the further away is a director from being elected by shareholders, the lower is the CEO turnover-performance sensitivity. This finding is robust to different performance measures, different subsamples, and endogeneity concerns. We then consider possible explanations for our finding including busy directors/boards, director experience, and shareholder monitoring. We conclude that shareholder democracy via annual general meetings is an important governance mechanism while staggered boards reduce its effect.