Date of Graduation

8-2019

Document Type

Dissertation

Degree Name

Doctor of Philosophy in Business Administration (PhD)

Degree Level

Graduate

Department

Management

Advisor/Mentor

Alan E. Ellstrand

Committee Member

Jason W. Ridge

Second Committee Member

Jonathan L. Johnson

Keywords

Agency theory, Lead independent director, Organizational decoupling, Quad model

Abstract

This paper examines a relatively new form of board leadership structure, the Lead Independent Director (LID), that has not received much attention in the corporate governance literature. This role was adopted in 2003 by most large US firms as a result of stock exchange mandates and pressure from institutional investors. From an agency theory perspective, this new form of leadership structure was designed to give additional control to independent directors, thus enhancing the monitoring function of the board. However, according to symbolic management theory, firms may adopt such a structure merely as a response to institutional pressures, thus making no significant changes to boards’ monitoring mechanism. This paper examines whether efficiencies and monitoring within boards have increased after the adoption of the LID. This paper contributes to the limited understanding of LIDs and studies the antecedents and consequences of having an effective LID. I predict that underperforming firms, firms with high strategic complexity, as well as firms with a large number of dedicated institutional investors are more likely to select an effective lead independent director. In addition to that, I suggest that an effective LID can influence board monitoring functions such as board meeting effectiveness, CEO compensation structure, and dismissal of problem directors. Using sample of S&P 500 firms, I found that underperforming firms were more likely to select an effective LID, whereas the level of strategic complexity of the firm had no effect on the selection of an effective LID. Surprisingly, I found that firms with a higher ratio of dedicated investors were more likely to select a less effective LID. For the consequences, I found that when firms adopted effective LIDs, the following year the board meetings had higher attendance, and problem directors on boards were more likely to be dismissed. However, the effectiveness of a LID had no influence in changing the CEO’s pay structure. Results from this dissertation provide valuable insights about the adoption of LIDs.

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