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Board Meeting Attendance by Outside Directors

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Abstract

Outside directors’ regular board meeting attendance is important in improving the effectiveness of a governance system. Such attendance is evidence of their commitment to the firm as key other players in monitoring and decision making. Using a unique dataset for Korean firms, and three-level random coefficients models, we find that, foreign outside directors, an independent appointment process, professional knowledge of business operations and accumulated firm-specific knowledge are important factors that affect outside directors’ attendance of board meetings. The results also confirm that both outside directors’ personal characteristics and the social context are crucial in understanding their board meeting attendance. Further analysis shows that a positive corporate environment that supports the outside director system encourages outside directors’ attendance at board meetings.

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Notes

  1. Information about the number of board positions held in other firms is not available.

  2. The fundamental shortcoming of traditional OLS and weighted LS is that they do not model error properly, which can result in misleading parameter estimations.

  3. The mean attendance rate in Korea is 71 %. In contrast to the case of Korea, the SEC in the US stipulates that board members must meet the 75 % participation threshold level.

  4. The variance at the individual level (i.e. outside director) is 1.238 with a standard error of 0.064, and variance at the firm level is 1.171 with a standard error of 0.113. The variance of unexplained residuals is 0.562. The intra-class correlation at the firm level, calculated by 1.171/(1.171 + 1.238 + 0.562), shows that 39.4 % of the variance of the attendance rate is at the firm level. The calculation of intra-class correlation at the personal level is 41.7 %.

  5. The inclusion of the individual level increased the group-level variance (i.e. the lowest row of random part) by around 5 %, which is similar to Hox (2000).

  6. The possibility of the heterogeneous effect of a higher level variable on a lower-level variable has been acknowledged in the educational research literature. Cronbach and Webb (1975) conjectured that effective teachers were only effective with certain types of students, and not necessarily effective with all students to the same extent. Raudenbush and Bryk (1986) also proposed different effects of public schools on pupils’ maths scores.

  7. We did not impose any restrictions on the structure of covariance between random intercept and slope at the individual level.

  8. The estimated regression coefficient of the non-Korean variable on the committee variable is also significant at the 1 % level.

  9. In fact, we need to divide these numbers by the standard deviation of the response variable to recover the standardized coefficients. Dropping this common denominator does not affect the relative magnitudes.

  10. This unilateral and predetermined payment, however, mitigates the endogeneity problem caused by reverse causality.

  11. All the correlations between exceedingrate, non-Korean and the interaction variable are significant at the 1 % level. The statistics of χ 2 for the change in deviance suggest that Model_c2 is preferred although the direct effect of exceedingrate is no longer significant.

  12. Although correlations between the interaction variables are not significant, all inter-class interaction variables are significant at the conventional level.

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Acknowledgments

We thank Hicheon Kim, Uwe Dulleck, Hong Zoe Zou, Peter Verhoeven, Janice How, Adrian Cheung, Adam Clements, Dipanwita Sarkar, Jayanta Sarkar, James Routledge, Keith Duncan, Pamela Kent, Ahmed Khalid, Yul Kwon and Ki-Hoon Lee for valuable comments, and all seminar participants at the Queensland University of Technology, and participants at the Bond University. Byung also wishes to thank the Griffith University Research Grant for financial support. The usual disclaimer applies.

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  1. Griffith Business School, Griffith University, Nathan, Australia

    Byung S. Min

  2. Birmingham Business School, University of Birmingham, Birmingham, UK

    Amon Chizema

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Min, B.S., Chizema, A. Board Meeting Attendance by Outside Directors. J Bus Ethics 147, 901–917 (2018). https://doi.org/10.1007/s10551-015-2990-9

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