Deadlock on the Board

Jason Donaldson, Giorgia Piacentino and Nadya Malenko

No 12503, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a dynamic model of board decision making. We show that directors may knowingly retain the policy they all think is the worst just because they fear they may disagree about what policy is best in the future—the fear of deadlock begets deadlock. Board diversity can exacerbate deadlock. Hence, shareholders may optimally appoint a biased director to avoid deadlock. On the other hand, the CEO may appoint unbiased directors, or even directors biased against him, to create deadlock and thereby entrench himself. Still, shareholders may optimally give the CEO some power to appoint directors. Our theory thus gives a new explanation for CEO entrenchment. It also gives a new perspective on director tenure, staggered boards, and short-termism.

Keywords: Corporate boards; Deadlock; Entrenchment; Ceo turnover; Director elections (search for similar items in EconPapers)
JEL-codes: G34 M12 M14 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-cfn and nep-mic
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Citations: View citations in EconPapers (2)

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Working Paper: Deadlock on the Board (2019)
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