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Boards of Directors’ Self Interest: Expanding for Pay in Corporate Acquisitions?

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Abstract

Director compensation can potentially represent an ethical minefield. When faced with supporting strategic decisions that can lead to an increase in director pay, directors may consider their own interests and not solely those of the shareholders to whom they are legally bound to represent. In such cases, directors essentially become agents, rather than those installed to protect principals (shareholders) from agents. Using acquisitions as a study context, we employ a matched-pair design and find a statistically significant difference in outside director compensation between acquiring and control firms. Outside directors of acquiring firms earn more than twice as much as their counterparts in the matched-sample.

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Authors and Affiliations

  1. Mays Business School, Texas A&M University, College station, TX, 77845, USA

    S. Trevis Certo & Richard H. Lester

  2. Kelley School of Business, Indiana University, Bloomington, IN, 47405, USA

    Catherine M. Dalton & Dan R. Dalton

Authors
  1. S. Trevis Certo
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  2. Catherine M. Dalton
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  3. Dan R. Dalton
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  4. Richard H. Lester
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Correspondence to S. Trevis Certo.

Additional information

S. Trevis Certo is an associate professor and Mays Research Fellow in the Mays Business School at Texas A&M University. He received his Ph.D. in Strategic Management from the Kelley School of Business at Indiana University. His research focuses on corporate governance (boards of directors, ownership structure, and CEO compensation), top management teams, initial public offerings (IPOs), and research methodology.

Richard H. Lester is a clinical associate professor and Director of Academic Entrepreneurship Programs in the Mays Business School at Texas A&M University. He received his Ph.D. degree in Strategic Management from the Mays Business School at Texas A&M University. His current research interests focus on corporate governance, upper echelons and entrepreneurship.

Catherine M. Dalton holds the David H. Jacobs Chair of Strategic Management in the Kelley School of Business, Indiana University. She also serves as Editor of Business Horizons, as Research Director of the Institute for Corporate Governance, and as a Fellow in the Randall L. Tobias Center for Leadership Excellence. She received her Ph.D. degree in Strategic Management from the Kelley School of Business, Indiana University. Professor Dalton's research is in corporate governance, with particular expertise in board composition, board leadership structure, executive and director compensation, and firms' ownership structures. Her research spans all types of organizations, including entrepreneurial firms, small businesses, large public corporations, and private organizations.

Dan R. Dalton is the founding Director of the Institute for Corporate Governance, Dean Emeritus, and the Harold A. Poling Chair of Strategic Management in the Kelley School of Business, Indiana University. He is a Fellow of the Management in the Kelley School of Business, Indiana University. He is a fellow of the Academy of Management and an inaugural member of its Journals Hall of Fame. Professor Dalton is widely published, with over 280 articles in corporate governance, business strategy, law, and ethics. Additionally, his work has been frequently featured in the business and financial press including, Business Week, Wall Street Journal, Fortune, Economist, Financial Times, Boston Globe, Chicago Tribune, Los Angeles Times, New York Times, and the Washington Post. Professor Dalton regularly addresses public, corporate, and industry groups on corporate governance issues.

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Certo, S.T., Dalton, C.M., Dalton, D.R. et al. Boards of Directors’ Self Interest: Expanding for Pay in Corporate Acquisitions?. J Bus Ethics 77, 219–230 (2008). https://doi.org/10.1007/s10551-006-9345-5

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  • DOI: https://doi.org/10.1007/s10551-006-9345-5

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