When boards intervene, news coverage matters

If you listen to top managers, the story you hear is that it's bad news when the board hits the headlines. Boards are supposed to be the wise counsellors behind the scenes. The chief executive is the face of the corporation. A study in Germany suggests a rather more nuanced view. German companies, of course, have two-tier boards, with a supervisory board of non-executives and representatives of the workforce. They oversee the work of management boards, with their chief executives and senior management teams. When the supervisory board intervenes, you would think it's a sign of serious discord, and ought, therefore, to be bad news indeed. Two academics at the University of Tübingen looked at the effect of supervisory board interventions on the value of publicly listed firms in Germany between 2000 and 2006. "Looking at companies receiving low media coverage, we find a negative and significant effect of supervisory board interventions on firm value," their study says. But the picture is different for companies that are always in the news. Supervisory board interventions "have a positive effect on stock prices which is also significant when returns are cumulated over several days".

Source document: The study "Stock Price Reaction to Supervisory Board Interventions: Empirical Evidence from Germany," by Karin Vetter and Philipp Sturm at the University of Tübingen, is a 27-page pdf file.