Ankira Patel analyzed the board structures and financial performances of 1,700 firms from 2000 to 2011 to determine the impact of the lead independent director (LID) position. Her results showed that LIDs are not necessary for a firm's financial prosperity, as firms with a combined CEO-chairman role achieved similar stock returns to those with separate positions. She also found that stock performance decreased slightly on average after adding a LID to oversee an existing CEO-chairman. Therefore, her findings suggest that requiring every firm to have a LID may be misguided, as the structure that works best depends on the individual needs of each company.

1. Ankira Patel
Dr. David Becher
2015 STAR Showcase
13 August 2015
Too Many Cooks in the Kitchen?
After accounting scandals such as Enron, regulators such as the SEC and NYSE
have suggested a new, unbiased role to help guide firms: lead independent director or
LID. These directors are responsible for providing oversight when a CEO duals as
Chairman of the Board, in hopes to prevent potential conflicts of interests. My research
analyzes board structures through proxy statements of 1,700 firms from 2000 to 2011. To
determine the impact of the LID position, I studied each firm’s stock and accounting
performances.
My results indicated that LID’s are not necessary for a firm’s financial prosperity.
For example, firms that share a CEO and chairman have an average stock return of 17%
per year, whereas companies that separate these positions perform similarly with an
average stock return of 13.7% per year. Firms that have consistently performed tend not
to introduce a LID, likely due to their confidence in their existing board structure. Firms
with less confidence in their board structures sought a LID to stabilize their financial
performance. My data, however, does not demonstrate that a LID will improve stock
return. Stock performance actually decreases by an annual average of 1.8%, after a
company adds a LID to oversee an existing CEO-Chairman.
Overall, my findings demonstrate that the suggestion to create a LID may be
misplaced, because not every firm requires this role to thrive financially. The key to
success appears to lie in implementing a strong system of checks and balances that suits
the needs of each company themselves.