ENDOGENOUSLY CHOSEN BOARDS OF DIRECTORS AND THEIR MONITORING OF THE CEO

How can boards be chosen through a process partially controlled by the CEO, yet, in many instances, still be effective monitors of him? We o ffer an answer based on a model in which board effectiveness is a func tion of its independence. This, in turn, is a function of negotiations (implicit or explicit) between existing directors and the CEO over wh o will fill vacancies on the board. The CEO's bargaining power over th e board-selection process comes from his perceived ability relative to potential successors. Many empirical findings about board structure a nd performance arise as equilibrium phenomena of this model.