Can shareholders be wrong ?

Two views of board/CEO relationship persist. One is the common view that boards that are "entrenched" - or insulated from shareholder action - will ignore a struggling CEO to the detriment of shareholder interests. Such lax oversight is deemed to have played a role in allowing the recent spate of corporate scandals and record-setting bankruptcies to take place. The opposing view holds that boards that respond quickly to public sentiment could become agents of shareholders who are less informed. Associate professors Ray Fisman, Matthew Rhodes-Kropf, and Rakesh Khurana examined 436 of the largest U.S. companies for which complete data could be assembled for a working paper. They analyzed company data for the period from 1980 through 1996 and identified 728 CEO successions. On the basis of a literature search, they determined that CEOs were forced out in 180 of those successions. The most intriguing finding emerges when the authors looked at a nonevent: the retention of a CEO when corporate performance lags