Disciplining and Screening Top Executives



Boards of directors face the twin task of disciplining and screening executives.To perform these tasks directors do not have detailed informationabout executives’ behaviour, and only infrequently have information aboutthe success or failure of initiated strategies, reorganizations, mergers etc. Weanalyse the nature of (implicit) retention contracts boards use to disciplineand screen executives. Consistent with empirical observation, we find thatexecutives may become overly active to show their credentials; that the linkbetween bad performance and dismissal is weak; and that boards occasionallydismiss competent executives.


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Ingolf Dittmann