Steven M. Davidoff, Do outside Directors Face Labor Market Consequences - a Natural Experiment from the Financial Crisis, 4 Harv. Bus. L. Rev. 53 (2014)
The shock of the financial crisis focused shareholder and regulator attention on financial firm performance. We use the crisis as a lens through which to study labor market consequences for outside directors at banks and other financial firms. Examining 4,856 outside director-years at such institutions over the period from 2006 to 2010, we find that the increased chance of being replaced for poor performance is between 1.22% and 5.79% for a one standard deviation change in performance, an arguably trivial amount. We also find no labor market reaction to poor firm performance in the form of lost directorship opportunities at other firms. We draw on these empirical findings to assess the limitations of board-centered responses to the financial crisis.