Board Composition and Performance in Life Insurance Companies
| Author | Stephen R. Diacon,Noel O'Sullivan |
| Published date | 01 June 2003 |
| DOI | http://doi.org/10.1111/1467-8551.00269 |
| Date | 01 June 2003 |
Board Composition and Performance in
Life Insurance Companies
*
Noel O’Sullivanwand Stephen R. Diaconz
wBusiness School, Loughborough University, Ashby Road, Loughborough LE11 3TU and
zCentre for Risk and Insurance Studies, Nottingham University Business School, UK
Corresponding author email: c.n.osullivan@lboro.ac.uk
The past decade has witnessed a renewed emphasis on the quality of board governance
worldwide. In the wake of a series of governance reports, particular interest has focused
on the role and effectiveness of non-executive board members. This study seeks to add to
our understanding of the governance role of non-executive directors by examining the
use and usefulness of non-executives in insurance companies. The focus on the insurance
industry, which includes both proprietary (stock) and mutual companies, allows us to
examine the importance of board governance in the context of different ownership
structures. Furthermore, by focusing our study in a period prior to the widespread
adoption of the recommendations of the Cadbury Report by UK companies, our findings
should more accurately capture the true role of board composition in a less-prescriptive
governance environment. Our results suggest that mutual insurers utilize a greater
proportion of non-executive directors and are less likely to have CEO/Chairman
duality than their proprietary counterparts. This evidence is consistent with mutuals
using stronger board governance to compensate for weaker ownership control.
Proprietary companies, which are subject to stronger shareholder and capital market
control, place less reliance on non-executive monitoring. Using a number of
performance measures, we find no significant difference in the behaviour of mutual
and proprietary companies with the exception of executive remuneration, (which is
significantly higher for proprietary companies); furthermore there is no evidence that
mutuals have outperformed their stock company rivals. Overall, our findings suggest
that insurance companies emphasize different governance mechanisms depending on the
specific monitoring problems they face.
Introduction
The past decade has witnessed an increased
interest in the quality of corporate governance.
In the wake of a series of governance reports
(Cadbury, 1992; Greenbury, 1995; Hampel,
1998), particular interest has focused on the role
and effectiveness of non-executive directors. Over
the past few years much academic work has
sought to examine the influence of non-executive
board members on company behaviour with a
specific interest in seeking to understand the role
of non-executives in ensuring that companies are
administered in the interests of shareholders and
in promoting efficiency and profitability.
1
Despite
a large number of empirical studies, there
remains a lack of consistent evidence on the
benefits or otherwise of non-executive monitor-
ing. Recent empirical work by Vafeas and
Theodorou (1998), Bhagat and Black (1999)
and Agrawal and Knoeber (1999) for example,
*
The paper has benefited from the helpful comments of
two anonymous reviewers. The financial assistance of
the Association of British Insurers is gratefully acknowl-
edged.
1
This dual role is discussed in more detail in Keasey,
Thompson and Wright (1997, chapter 2).
British Journal of Management, Vol. 14, 115–129 (2003)
r2003 British Academy of Management
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