On Columbia Law School’s blog, Jason Roderick Donaldson, Nadya Malenko and Giorgia Piacentino write about board deadlock:
[S]ometimes boards struggle to make decisions. In surveys, 67 percent of directors report the inability to decide about some issues in the boardroom. Moreover, 37 percent say they have encountered a boardroom dispute threatening the very survival of the corporation. Such a “division among the directors”—such deadlock on the board—“may render the board unable to take effective management action” and can even lead directors to “vote wholly in disregard of the interests of the corporation.” …We find that long director tenures, a hotly debated issue, exacerbate deadlock. In anticipation of a long tenure, directors behave strategically, blocking good candidates to preserve a strong bargaining position in the future, and thereby create deadlock.
Similarly, we find that boardroom diversity can exacerbate deadlock (its benefits notwithstanding). For example, the deadlock caused by an activist’s bias toward divestiture is not resolved by adding some executive directors biased toward investment. These directors will block divestiture-oriented policies, even if they agree that they are optimal today, just to preserve a strong bargaining position for the future. More generally, heterogeneous director biases do not cancel out—they do not yield a board that implements policies in shareholders’ interests. Rather, they can yield a board that does not implement any policies at all. This downside of diversity is in line with the empirical literature, which finds that diversity of directors’ skills and experience is negatively associated with strategic change and firm value. (footnotes omitted)
Perhaps because we do not consider action, especially actions proposed by the CEO to automatically be presumed worth pursuing, we disagree with the authors’ conclusion that “it is not always optimal for shareholders to have full power to choose new directors. By ceding some power over director appointments to the CEO, shareholders can [the implication here is that they should] commit not to block his preferred policies in the future, and hence prevent deadlock today.”