Daily Academic Alpha: Board Room Games

Daily Academic Alpha: Board Room Games

March 19, 2015 Uncategorized
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(Last Updated On: January 18, 2017)

Breaking the Glass Ceiling

In late 2003, Norway passed a law mandating 40 percent of each gender on the board of publicly limited liability companies. The primary objective of this reform was to increase representation of women in top positions in the corporate sector and decrease gender disparity in earning within that sector. We document that the newly (post-reform) appointed female board members were observably more qualified than their female predecessors, and that the gender gap in earnings within boards fell substantially. While the reform may have improved representation of female employees at the very top of the earnings distribution (top 5 highest earners)within firms that were mandated to increase female participation on their board, there is no evidence that these gains at the very top trickled-down. Moreover the reform had no obvious impact on highly qualified women whose qualifications mirror those of the board members but who were not appointed to boards. We observe no statistically significant change in the gender wage gaps or in the female representation in top positions, although standard errors are large enough that we cannot rule economically meaningful gains. Finally, there is little evidence that the reform affected the decisions of women more generally; it was not accompanied by any change in female enrollment in business education programs, or a convergence in earnings trajectories between recent male and female graduates of such programs. While young women preparing for a career in business report being aware of the reform and expect their earnings and promotion chances to benefit from it, the reform did not affect their fertility and marital plans. Overall, in the short run the reform had very little discernible impact on women in business beyond its direct effect on the newly appointed female board members.

Regulating CEO Narcissism

We analyze how boards use monitoring mechanisms, in particular the compensation package, to regulate CEO narcissism and maintain it at an appropriate level which protects shareholder interests. We first develop a model which formalizes the desirable level of CEO narcissism from the shareholders’ point of view. We then use the model to interpret the relations that we find between the variation in CEO narcissism and the lagged level of compensation package components, controlling for governance mechanisms and firm characteristics. Our empirical evidence is based on a ten-year panel data set tracking S&P 500 CEO narcissism. Our results clearly support that the time-varying component of CEO narcissism is affected by the compensation package (specifically cash bonuses) and that shareholders are therefore in position to control (to some extent) the evolution of CEO narcissism.


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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray received a PhD, and was a finance professor at Drexel University. Dr. Gray’s interest in entrepreneurship and behavioral finance led him to found Alpha Architect. Dr. Gray has published three books: EMBEDDED: A Marine Corps Adviser Inside the Iraqi Army, QUANTITATIVE VALUE: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors, and DIY FINANCIAL ADVISOR: A Simple Solution to Build and Protect Your Wealth. His numerous published works has been highlighted on CBNC, CNN, NPR, Motley Fool, WSJ Market Watch, CFA Institute, Institutional Investor, and CBS News. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.