Academic journal article Academy of Strategic Management Journal

CEOs as Corporate Directors: A Human Capital Perspective

Academic journal article Academy of Strategic Management Journal

CEOs as Corporate Directors: A Human Capital Perspective

Article excerpt


Decades-long research on boards of directors based on the agency theoretic insider/outsider distinction (Berle & Means, 1968; Fama & Jensen, 1983) has yielded limited results regarding the effectiveness of boards as monitors of senior management (Johnson, S., Schnatterly, & Hill, 2013). In response, governance scholars have begun incorporating such agency theory based distinctions with rich characterizations of the human and social capital content of board composition. Among these lines of inquiry are those examining the human capital of individual directors (Johnson, S., Schnatterly, & Hill, 2013) as well as the resulting human capital at the board level. Such inquiry seeks to determine what skills and experience directors bring to the board and the aggregate impact of this human capital on firm outcomes.

Among such scholarly investigations are those examining characteristics of subgroups of directors (Jensen & Zajac, 2004; Johnson, S., Schnatterly, & Hill, 2013; Lau & Murnighan, 1998) such as outside directors who are active CEOs at other firms. These scholarly investigations expand on agency theoretic research based primarily on directors' structural position by seeking to understand the human capital of boards that proceeds from the perspectives of these key strategic leaders. In this way, examination of board human capital in general and CEO director human capital specifically complements the agency theoretic emphasis on the structural position of directors by including the perspectives of these strategic leaders (Mintzberg, 1988) that result from the vantage point of this structural position. Simply put, outside directors bring more than their employment relationship to the focal firm and bring along with this structural relationship some rather unique perspectives stemming from a wide variety of direct experiences at their home firms and indirect experiences through observation of other firms.

In addition, previous research suggests that governance is more than oversight. Indeed, it depends on a balance or trade-off between inward-looking versus outward-looking perspectives (Cohen & Levinthal, 1990). As part of their external organizational role, boards link their focal organizations to critical environmental resources and information lying in a network of interlocking directorates (Finkelstein & Hambrick, 1996; Price, 1963; Pfeffer, 1972; Zald, 1969). Internally, in addition to their monitoring role, boards also perform policy roles of advice and counsel and ratification of strategy (Fama & Jensen, 1983; Finkelstein & Hambrick, 1996). Much of these external and internal roles are heavily informed by certain levels of expertise and skill (Baysinger & Butler, 1985). CEO directors come to the board with a great deal of experience, knowledge, and expertise comprising potentially valuable human capital. This human capital may enhance the capacity of the board to advise, counsel, ratify, and monitor the firm's management and strategic direction. This study examines the human capital brought to the boards of directors by active CEOs whose experience as general managers has resulted in both general human capital and specific human capital.


What scholars know about CEO directors comes from both the finance and strategic management literatures and can be summarized in terms of their effects on the appointing firm, factors influencing acceptance by active CEOs of board appointments, and source (home) firm and appointing (focal) firm characteristics. Regarding the impact on appointing firms, Fich (2005) reported a positive stock market reaction to appointment of CEO directors to boards of Fortune 1000 firms between 1997 and 1999. Faleye (2011) demonstrated that managerial compensation is higher and less sensitive to firm performance when CEOs serve as directors, although Fahlenbrach and colleagues (2010) using a broader sample and longer time series did not observe any relationship between the existence of CEO directors on the board and managerial compensation. …

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