When a corporate scandal breaks – like the recent one at Wells Fargo or earlier ones at Lehman, Enron, or Qwest – the question is always raised: what was the board of directors doing while the managers in these companies were involved in such unprofessional behavior? The answer is that, like most of us, directors respond to incentives. And my research suggests that those incentives need to change.
Board Directors Should Be Paid Only in Equity
It will help them focus on the long term.
May 03, 2017
Summary.
Like most of us, board directors respond to incentives. And research suggests that those incentives need to change. Recent studies have found that companies in which the directors owned more stock performed better in future years. Directors who own more stock are also more likely to discipline or fire the CEO when the stock price performance of their company has been sub-par in the previous two years. Compensation of corporate directors should consist only of restricted equity. This would help channel director attention toward longer-term profitability.