POST Online Media Lite Edition


Hiring 'problem directors' can knock up to 64% off firm's value

Christian Fernsby |
Companies that appoint directors with a track record of questionable professional conduct cause an increase in reckless corporate risk taking and could see up to 64 percent of a firm's value knocked off, a new study has found.

Article continues below

br> The research, published in the British Journal of Management, identifies "problem directors" as board members with past involvement in bankruptcies, litigation, corporate misconduct, or major accounting restatements and scandals, or who have nodded through over-generous CEO compensation packages.

Conducted by a team of academics from the Universities of Portsmouth and Salford in the UK, in collaboration with Massey University in New Zealand, the study investigates the effects of appointing "problem directors", as they are prone to pursue high-risk corporate projects, causing their firms to lose significant value.

An analysis of 8,926 US companies between 2004 and 2018 revealed the appointment of problem directors almost doubled the amount of questionable decision-making within the firm through reducing financial reporting quality and a lack of transparency (2.33 percent to 4.17 percent).

Professor Jia Liu, Director of the University of Portsmouth's Centre for Innovative and Sustainable Finance (CISF), said, "These directors are rotten apples that we've shown can spoil the whole barrel."

"These individuals are rarely dismissed because of their misconduct, but instead, the incidents are brushed under the carpet to maintain the firm's reputation."

"We've also seen numerous examples of managers moving on to higher positions with 'golden hellos' and increased compensation and benefits, even though their previous firms have got into serious financial difficulties."

Previous research has demonstrated that 34 percent of CEOs lie to the board or shareholders over drunk-driving offenses, undisclosed criminal records, or falsified credentials. Twenty-one percent engage in inappropriate relationships with subordinates, contractors, or consultants, and 16 percent misuse corporate funds.

Behavioral traits, including overconfidence and narcissism, are known to influence decision-making on policies for innovation, investment outcomes, financial reporting quality, and risk-taking.

Most worryingly for shareholders, though, the study finds that firms led by CEOs who also serve as "problem directors" tend to take even greater risks. They abuse their power by making significant reckless decisions, and their presence also encourages similar behavior among other managerial staff.

The data also shows the negative impact of corporate risk-taking continues even after the problem directors leave, emphasizing the long-term economic consequences.

The team was able to quantify the impact of "problem directors" on a company's worth, with their value loss ranging from 12.03 percent to 64.20 percent.

"Regulation is clearly failing the corporate sector, as tainted directors are still being hired despite mounting evidence that they negatively impact firms," added Professor Liu.

"And this lack of transparency affects the value of not only the problem director's current organization but also of firms they might join in the future."

The paper says the findings must prompt policymakers and regulators to redress weaknesses in corporate governance and the management of corporate risk.

It says, at the very least, a director's professional misconduct should be transparently disclosed so that stakeholders and shareholders can evaluate the risks they face.

Importantly, membership of organizations such as the Institute of Corporate Directors and the National Association of Corporate Directors should be a professional requirement, with certificates issued validating a director's fitness to practice and adherence to proper codes of ethics.

Professor Borhan Bhuiyan, from Massey University, said, "Many of the greatest financial crises have been instigated by high-risk decision-making. Highlighting our findings to the policymakers could potentially help protect national and global economies."

What to read next

Cybervetting can have pronounced impact on workforce by broadening discrimination
Organizations must radically rethink hiring practices
New CEO: Better without prior experience?

Flooding concerns in Puerto Rico; thunderstorms across southeast U.S.

The main weather feature and focus for showers and thunderstorms through this weekend will be a cold front progressing across the East and stalling between the Southeast and southern Texas.


Concept Medical announces enrollment of first patient in "MAGICAL-ISR" ide study in U.S.
U.S. oil rig count up by 5 to 511
Rhode Island Governor, State Police promote safe travel across Washington Bridge
Governor Abbott met with Samsung executives to discuss billions invested in Texas


California: Nearly 500 arrests, 160,000 stolen goods recovered in just 3 months

Romania: EPPO probes public officials in investigation into €160 000 fraud involving employment funds
EPPO: 3 convicted of evading €3.1 million in customs duties on imported e-bikes
Romania: EPPO conducted searches in investigation into €1.7 million fraud involving irrigation systems
U.S.: Pacific storm over west
4.8 magnitude earthquake rattles New Jersey and New York


U.S. drillers cut oil and gas rigs to 620

Australia: East coast gas surplus expected in Q3 2024
Kuwait-Saudi rail link to be ready by 2028, says report
Cambodia approves investment projects worth $2.2 in Q1
Venice to charge day trip tourists 5 euros
Commission opens two in-depth investigations in solar photovoltaic sector

Trending Now

Coca-Cola Company to create approximately 250 new jobs in Town of Webster

Governor Abbott met with Samsung executives to discuss billions invested in Texas

Egypt to establish free zone for yachts along Red Sea coast

Johnson & Johnson Q1 earnings $5.3bn


Egypt to establish free zone for yachts along Red Sea coast

UK Exports Minister visits Latin America to boost trade and unlock billions worth of exports
Argentina, Brazil in talks to reverse Bolivian gas pipeline amid shortage
Trudeau offers $6 billion to provinces to build housing
€1 billion Greek State aid measures to support renewable energy generation and storage projects
North Carolina reaches electric vehicle registration goals two years early

Today We Recommend

Egypt to establish free zone for yachts along Red Sea coast


Nokia Q1 sales down

UnitedHealth Q1 $99.8 billion

Johnson & Johnson Q1 earnings $5.3bn


Coca-Cola Company to create approximately 250 new jobs in Town of Webster

99 Cents Only Stores to close all 371 stores
Alaska Airlines says Boeing paid $160 mln for 737 Max 9 grounding
Lindsay announces agreement to acquire minority interest in Pessl Instruments
Saint-Gobain to acquire Bailey for $650 million
Farmers Mutual Hail to acquire Global Ag from AXA XL


MainStreaming appoints Tassilo Raesig as COO

BioArctic AB proposes for election board members and chairperson
TerraPay names Marco Boldini as EVP and global head of governmental affairs
Farmers Insurance appoints John Griek as CFO
PA Media Group appoints Emily Shelley as new CEO
BioNTech appoints Annemarie Hanekamp as chief commercial officer


Slovenia's economy expected to grow 0.9 pct in Q1

Italy faces deficit infringement procedure
Real GDP increased in all 50 U.S. states
Inflation continues to decline in Germany
UK house prices log unexpected fall
South Korea's FDI logs double digit growth in Q1


Nokia Q1 sales down

UnitedHealth Q1 $99.8 billion
Johnson & Johnson Q1 earnings $5.3bn
Dollarama Q4 sales increased 11.3%
Conagra Brands Q3 sales decreased 1.7%
Liebherr finished 2023 business year with record revenue of €14,042 million


Micromanaging is the worst enemy of efficiency and teamwork

Niger set to monetize massive gas reserves through Saharan natural gas pipeline
Putting the brakes on EV folly that choked the market
Oil discovery in Kavango Basin may mean huge benefits for Namibians
Cape Town and Dubai battle over Africa's energy future
Is America going to lose its superpower status?


FAO Food Price Index rises in March

Australia grants license for GM bananas amid Fusarium Wilt TR4 concerns
Indian government allows exports of 10,000 tons of onions to UAE
Analytical survey: Sales of agricultural lands in Ukraine up 50% in February
Decline in Norwegian seafood exports in Q1
Tanzania's first fishing harbor to be completed in 2025


Study finds workers misjudge wage markets

Some organizations may need to expand their hierarchical structures earlier than others
Study finds there's right way and wrong way to deliver negative feedback in workplace
Allyship is critical and its needs appreciation
Generating 'buzz' about new products can influence their success
Hiring 'problem directors' can knock up to 64% off firm's value


HSBC pays penalties for alleged breaches of Consumer Data Right rules

Sanofi to settle thousands of Zantac cancer lawsuits
Former asset manager and board member of Geneva private bank referred to Swiss Federal Criminal Court
South Africa: SAP ordered to pay SIU $26m over 'invalid' Eskom contracts
Former Steinhoff director appears in court for $1.1b fraud, racketeering
Genesis agrees to pay $21 million penalty to settle SEC charges



Buna channels, an unreal and beautiful part of Bosnia and Herzegovina

JW Marriott unveils Mindful Haven with opening of JW Marriott Hotel Nairobi
Sotheby's Sports Week returns with fantastic artifacts
Red Roof properties open in Michigan
Treyam, your premier lagoon destination in Saudi Arabia
San Francisco: SkyStar wheel on Fisherman’s Wharf to stay for another 18 months


2025 Chevrolet Equinox stands apart with fresh looks and capability

Hill Helicopters HX50, luxury in the sky
Opel Movano becomes fully equipped camper van
Porsche Panamera, new hybrid variants
Dodge Charger, 670 horsepower of electric
Pagani Huayra R Evo, 900 hp from 770 Nm


Cold night, hot fire pit, cool entertainment

Embellish your home with PVC panels
You'll have to hurry if you want one of 20 new Louis Vuitton watches
Luxury duvet looks good, fells good and keeps you healthy
Vacheron Constantin, watches for life and more
Schüller kitchens, where functionality marries design


reMarkable 2, monochrome tablet for your thoughts and your eyes

OnePlus Ace 3V, first with Snapdragon 7 Plus Gen 3
ASUS Zenfone 11 Ultra, flagship with a reason
Samsung Galaxy S24 is photography powerhouse
Casette tapes are making a big comeback, and so are portable players
Neumann TLM 103, standard microphone for both voice and music


India launches first home-grown gene therapy for cancer

UK scientists win funding for 'cancer detecting' Lollipops
State to cover rare disease treatment costs in Bulgaria
Type 1 diabetes patients in England to receive 'artificial pancreas' as medication
Pilot study shows ketogenic diet improves severe mental illness
Texas reports possibly U.S. first human case of bird flu linked to cattle


Rare species of wild bees discovered in Berlin

SLAC completes construction of largest digital camera ever built for astronomy
Solar eclipse next week in U.S., Mexico and Canada
Gravitational waves may have made human life possible
Astronomers unveil strong magnetic fields spiraling at the edge of Milky Way's central black hole
Scientists on hunt for evidence of quantum gravity's existence at South Pole