On board dissent

By ​Juan Ma & Tarun Khanna

This paper examines the circumstances under which so-called “independent” directors voice their independent views on public boards in a sample of Chinese firms. Controlling for firm and board characteristics, independent directors’ dissent is associated with breakdown of social ties between the independent director and the board chairperson, who locates at the centre of the board bureaucracy in China… Dissent is more likely to occur when the chairperson who appointed the independent director has left the board.

Dissent also tends to occur at the end of board “games”, defined as a 60-day window prior to departure of the board chairperson or departure of the independent director herself. The endgame effect is particularly strong, seeing 27% of the dissent issued at board “endgames”, which represents only 4% of independent directors’ average tenure.

While directors with foreign experience are more likely to dissent, we do not find that academics, accounting and law professionals are significantly more active in dissenting. We also show that dissent is consequential, to the director and the firm.

For directors, dissent significantly increases the likelihood for a director to exit the director labour market. For firms, around announcement of dissent, firms suffer an economically and statistically significant cumulative abnormal return of –0.97%.

From “Board Games: Timing of Independent Directors’ Dissent in China”