Boards of directors and the adoption of a CEO performance evaluation process: Agency and institutional theory perspectives

Using both agency and institutional theories, we examined factors associate d with the board's adoption of a formal process for evaluating the performa nce of the corporation's chief executive officer (CEO). Our sample was draw n from the hospital industry. Results show that an independent board chairp erson, the level of market competition and the degree of managed care penet ration were significant predictors of whether or not the board had adopted a formal CEO evaluation process. These findings imply that initiatives to i mprove governance effectiveness based on agency theory should take into acc ount the institutional environment of corporate boards.