How Does Forced CEO Turnover Experience Affect Directors?

Jesse Ellis, Lixiong Guo, and Shawn Mobbs

We study changes in independent director behavior and labor market outcomes after experiencing a forced CEO turnover. We find they are more willing to fire CEOs of underperforming firms, hire outside CEOs after a firing and encourage better board meeting attendance by fellow directors. We also find that shareholders of poorly performing firms react positively when experienced directors join the board. It does come with a small cost for directors, in terms of additional directorships, though the cost is not as great as that for directors who do not fire the CEO of a poorly performing firm.