Empowering Minority Shareholders and Enhancing Director Accountability via Lower Voting Thresholds and Board Spills: Evidence from the Australian “Two-strikes” Rule

Accounting and Management Control

Speaker: Martin Bugeja

HEC Campus - Build.T  - Room 004

Abstract:

We exploit the adoption of the Australian “two-strikes” rule as a quasi-exogenous shock to assess the causal impact of “say-on-pay” on CEO compensation and director careers. The two-strike rule empowers shareholders to vote on a board spill if a firm’s remuneration report receives 25% or more dissent votes for two consecutive years. Using a difference-in-differences methodology, we find firms respond to a “strike” by curbing excessive CEO pay, enhancing the pay–performance link and replacing CEOs. After a strike, independent directors experience significant reputational penalties in terms of turnover and losing outside directorships. The results are driven by non-majority strikes.