| The 1990s included a renewed emphasis on board independence. Allegedly, the greater the proportion of independent outside directors, the more effective the board is at monitoring CEOs. I assert in this dissertation that there are limits to board independence. Specifically, when a chief executive officer (CEO) is the only inside board member, which I call a lone-insider board, a critical source of information and mutual monitoring by other inside directors is lost. Increased information asymmetry and loss of mutual monitoring gives CEOs more freedom to influence organizational outcomes toward their personal preferences and in conflict with shareholders' interests. Contrary to expectations, results indicate lone-insider boards are fulfilling their fiduciary responsibilities in the area of executive compensation. However, lone-insider boards need to limit CEO duality as well as encourage long-term strategies such as research and development investment. This study also found that blockholders are somewhat detrimental in lone-insider boards, because they increase total CEO compensation and compensation differentials on the top management team. Duality is also more common when blockholders are present. Finally, as lone-insider boards increase in size, they generally lose their effectiveness. Duality is more common in larger lone-insider boards, and two of the three measures of executive compensation are greater. |
