“Can skilled experts in BOD ensure better Governance? Roles of Incentives and Career Concerns”

Sanjay Banerji

University of Nottingham

Abstract: The paper demonstrates that a highly skilled board capable of acquiring relatively more precise information mitigates the CEO's agency costs and deters information manipulation by influential insiders. Such firms would truthfully disclose both good and bad news, detect the profitability of projects and restructure them more often than others. Still, they will incur lower compensation costs to the board members and CEO to implement fiduciary duties. The skilled board members reduce rents paid to the CEO and mitigate costs of preventing information manipulation because they are more responsive to incentive payment and prospects of career concerns induced by the frequency of job renewals by the firm. The skilled members tend to enjoy higher lifetime earnings and greater length of job duration.