(originally published by Booz & Company)

The Effect of Outside Directors on Performance

The more informed the outside directors, the better they are able to help improve company governance and performance.

Title:
When Are Outside Directors Effective?

Authors:
Ran Duchin, John G. Matsusaka, and Oguzhan Ozbas

Publisher:
University of Southern California Center in Law, Economics, and Organization (CLEO), Research Paper No. C07-13

Date Published:
February 2008

Most public companies must now include independent outsiders on their boards of directors. But does independent governance have any meaningful effect on a company’s overall performance? Until recently, there was very little evidence to suggest that it did. According to this study, however, independent directors can have a positive, quantifiable effect on corporate governance and company performance, if those directors are provided easy access to company information, including data about assets, market value, competitive threats, and historical performance.

Bottom Line:
The more informed the outside directors, the better able they are to help improve company governance and performance.

 

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