Corporate Misconduct and the Market for Directorships

This Director Notes analyzes the changes in directorships held by outside board members of 113 public companies involved in a shareholder class-action lawsuit alleging the misrepresentation of information to investors. The study tracks directorship changes for three years after the initiation of litigation to account for staggered director elections, and uses information from proxy statements to identify director turnover. Outside directors whose companies are involved in litigation appear to experience reduced opportunities to serve on other companies’ boards: The average number of board seats held by these individuals at other companies drops from 0.95 in the year prior to the litigation to 0.47 three years after the suit is filed.