Board of directors turnover with new board chairs in family firms

Abstract

We investigate the role of family ownership on turnover within a firm’s board of directors when the firm appoints a new board chair. We conduct regression analysis using financial and governance data of public companies in the United States. We test new theoretical relationships linking the appointment of the new chairs and director turnover at different levels of family influence based on the Attraction-Selection-Attrition theory. We find that directors are more likely to exit when a new chairperson is appointed due to changes in board governance. In family firms, however, overall board governance is more consistent due to the family’s significant controlling power and the family’s direct or indirect support of the board leadership and governance function; as a result, family ownership of a company moderates the effect of having a new chair on the board in the likelihood that a director exits its board. This study enhances the understanding of how corporate boards renovate themselves as they strive to become more effective. Particularly, it helps explain whether a firm can deliver intended innovation when they announce an appointment of a new chairperson in response to the need for change in stagnant financial performance situations or by external pressure.

Keywords

• Corporate governance
• director turnover
• family business
• board chair