Corporate Governance Codes, Board Evaluations, and Director Turnover: A Study on Scandinavian Boards of Directors

Abstract: In the years of 2001, 2004 and 2005 – Denmark, Norway, and Sweden introduced new corporate governance codes targeting listed companies. In this thesis, we study the characteristics of the Scandinavian codes and the effect of their implementation on director turnover probability. The effect is studied separately for small and large firms. Additionally, we study the guidelines in the codes on board evaluation, and how different evaluation rigorousness affects the board turnover. To measure the effect of the codes, we employ a Cox proportional hazard model and conduct a survey among Swedish chairmen. We find that the implementation of the codes has lowered the probability of director turnover. The effect is larger in small firms than in large firms. This is probably due to lost flexibility when following the guidelines, and that smaller companies have to adapt more in order to comply with the code. Furthermore, we find that a more rigorous board evaluation process increases board turnover. This applies when directors are evaluated individually or when an external evaluator is utilized. However, peer assessment among board members lowers board turnover. This, we argue, shows that board evaluation facilitates the discovery of competency gaps, but that board members are unwilling to share negative feedback.