In recent years, many management experts and activist investors argue that outside directors must take a significant stake in the companies they are watching. So far, however, the systematic evidence that stocks outside directors' really connected with the subsequent corporate performance was poor. This article provides such evidence. He is studying a sample of companies that have far exceeded their business sector (shareholder returns) over a 10-year period (Stars) and corresponds to a sample of companies that are worse than their sectors over the same period (lagging). At the beginning of the 10-year period - to their performance diverged - outside of Star companies have conducted much more capital (approximately four to five times more) than the directors of the companies lagging. Then, as the stars ahead of lagging performance, the difference in director holdings widened. The results clearly show that a significant proportion of the directors is a key factor for the effectiveness of management. The article concludes with a proposal for a new approach to obtain capital in the hands of directors - to purchase securities for the Fund for each director -., Which overcomes the shortcomings of currently dominant approach of "Hide
by Donald C. Hambrick, Eric M . Jackson Source: California Management Review 21 pages. Publication Date: July 1, 2000. Prod. #: CMR182-PDF-ENG
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