Board Structure and Monitoring: New Evidence from CEO Turnovers

We use the 2003 NYSE and NASDAQ listing rules concerning board and committee independence as a quasi-natural experiment to examine the causal relations between board structure and CEO monitoring. Noncompliant firms forced to raise board independence or adopt a fully independent nominating committee significantly increase their forced CEO turnover sensitivity to performance relative to compliant firms. Nominating committee independence is important even when firms have an independent board, and the effect is stronger when the CEO was on the committee. We conclude that more independent boards and fully independent nominating committees lead to more rigorous CEO monitoring and discipline.