4.3.2 Studies from 1995 until 2004

Mallette and Hogler found, in a sample of 366 United States industrial manufacturing companies from the Investor Responsibility Research Center (IRRC) database, a slight positive insignificant correlation between board independence1 and ROE (1995: 872). The sample consists of 179 companies with liability provisions for directors on their board and 187 without measures to exempt liability for directors. They investigated whether the percentage of independent directors affects the presence of such provisions. An analysis shows that the percentage of independent NEDs does not have any significant influence on the likelihood of such provisions in the contracts of board members (Mallette and Hogler 1995: 871-873).

Shen and Cannella (2002) researched the performance effects of the replacement of a CEO. For this purpose, the authors identified three types of successors: followers, contenders and outsiders. Followers are successors from inside the organisation after the ordinary retirement of the CEO, contenders are successors of the CEO from inside the organisation after the dismissal of the current CEO and outsiders are successors from outside the organisation. It was expected that followers would maintain the current strategic focus of the organisation, whereas contenders and outsiders would follow a different strategic path. Due to the lack of network within the organisation of outsiders, it was conjectured that outsiders would have a negative impact and contenders a positive impact on company performance. For a sample of 228 successions in the United States in the period 1988 to 1994, the impact was tested of the type of succession on the performance in the period after the replacement. The influence of board independence2 on the post-succession performance was measured as well. The type of successor did not have a significant influence on ROA, as had been conjectured, but it was observed that contenders and outsiders changed the strategy, in contrast to followers (Shen and Cannella Jr. 2002: 725-728). The impact of board independence is significant and positive in all scenarios reported. Therefore, board independence has a significant positive effect on the performance of a company in the time after a CEO replacement, irrespective of whether it is a forced replacement or not.

Weir et al. (2002) investigated the impact of internal and external governance mechanisms on the performance of 311 Times 1000 companies3 from the United Kingdom over the period 1994 until 1996. The authors conjectured that there would be a positive influence of the proportion of NEDs and the proportion of independent4 NEDs on the performance, measured by Tobin’s Q. Furthermore, they included the hypothesis that the presence of independent NEDs on the audit committee would have a positive effect on the performance of the company. The relationship between the ratio of independent NEDs and performance is positive and in some models significant as well (Weir et al. 2002: 594-603). The results for the percentage of NEDs (independent and nonindependent) are mixed; the influence of audit committee independence on performance is positive in all cases and in some models significant as well.

Besides measuring the direct impact of a variable on a performance variable, they conducted a logistics analysis to measure the probability that a company is in the top or bottom performance decile. This latter analysis shows that board independence and audit committee independence have a significant positive influence on the probability of being in the top performance decile. According to the authors, the mixed relationships between governance mechanisms and performance show the complexity of the relationship and do not make it clear whether compliance with corporate governance codes really benefits companies (Weir et al. 2002: 606).