SARBANES-OXLEY AND THE THEORIZED MISSING LINK: CEO-BOARD POWER

Raymond K. Van-Ness, University at Albany, State University of New York, U.S.A.
Charles F. Seifert, Siena College, Loudonville, New York, U.S.A.
Robert A. Downey, University at Albany, State University of New York, U.S.A.

Published in

JOURNAL OF ACADEMY OF BUSINESS AND ECONOMICS
Volume 19, Issue 4, p91-102, December 2019

ABSTRACT

The Sarbanes-Oxley Act (SOX) is considered one of the most significant securities legislations since the post-1929 stock market collapse. Yet, it appears to have failed to meet one of its presumed primary objectives of stimulating truly independent and proactive boards of directors in most publicly traded corporations. This study proposes that a key missing component of the act was its failure to more directly address the issue of CEO board-dominance. A range of high-profile corporations engaged in fraud, financial malfeasance, and other corporate misbehaviors since the enactment of SOX were highlighted. Studies of corporate boards, SOX, and CEOs are reviewed and a significant gap in the literature is identified. Few empirical studies exist into the relationship between CEO dominated boards and firm performance. A proposed three-factor model for measuring CEO power is introduced and demonstrated by applying it to nineteen large financial institutions. Results suggest that firms with CEO dominated boards paid its CEOs in the top tier while providing shareholder returns that were in the bottom tier of their industry. Further, every firm in this underperforming category practiced duality.

Keywords

Sarbanes-Oxley, Duality, CEO Compensation, Directors, CEO-Board Power


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