The Moderating role of non-executive directors: their influence on CEO dismissal decisions in the context of poor company performance

Purpose: This study examines the impact of four directors’ characteristics (tenure, busyness, occupation and industry related experience) on board effectiveness by capturing the influence of these characteristics on the non-executive directors’ incentives and willingness to monitor and, indeed, discipline top management for actions that result in poor firm performance. Originality: The measures of board effectiveness in this study are sophisticated, taking into account the findings in the literature and considering the non-linear (complex) relationships among factors that affect board effectiveness. Key literature / theoretical perspective: Board characteristics have been shown to be related to certain strategic and performance outcomes as well as to strategic change. Theoretical streams include resource dependence theory, stewardship theory, upper echelons theory, stewardship theory, institutional theory, and social network theory. Design/methodology/approach: This paper uses a sample of US firms that dismiss CEOs between 1999 and 2011, to examine the relation between independent directors characteristics (tenure, busyness, industry related expertise, and occupational expertise) and CEO dismissal. Expected findings: It is expected that increases in board control effectiveness would moderate the relation between CEO dismissal and poor firm performance. Theoretical implications: This study provides a solution to the confining and confounding findings in the literature by seeking to establish a possible link between measures for board’s independence/effectiveness and poor firm performance before independent directors’ influence becomes sufficiently strong enough to enable them to influence CEO dismissal. Practical implications: The findings could lead to the development of optimum tenure, busyness and experiences definitions for independent directors.