Audit-Committee Affiliation Index. To measure the extent of an audit committee’s partiality to the CEO, we calculate an affiliation index taking the average number of ties (between the CEO and each committee member) contributing to a director’s sympathy for the CEO. For instance, if there are three committee members sharing one, two, and three ties, respectively, with the CEO, then the resulting affiliation index equals two. In constructing our index, we assume that all ties contribute equally to a director’s partiality to the CEO. Although a more sophisticated measure might reflect the relative importance of different ties, our equal- weighted measure has the advantage of being simple, transparent, and independent of subjective judgment. In our analyses, we compare two different indices: a conventional index, which considers only the conventional ties (as specified by the IRRC), and a conventional-and-social index, which considers both conventional and social ties. Conventional Affiliation Index. The conventional index considers only the conventional ties (with a maximum of eight ties per director), accruing points whenever a committee member is a current employee, a former employee, an employee of a recipient of charitable contributions, a customer of or supplier to the firm (or an employee thereof), a provider of professional services to the firm (or an employee thereof), a relative of an executive officer, part of an interlocking directorate (i.e., an executive at firm X is a director at firm Y at the same time that an executive of firm Y is a director at firm X), or affiliated in some other manner.32 32 The scope of this final catchall is limited to (voluntary) proxy disclosures.
Audit-Committee Affiliation Index. To measure the extent of an audit committee’s partiality to the CEO, we calculate an affiliation index taking the average number of ties (between the CEO and each committee member) contributing to a director’s sympathy for the CEO. For instance, if there are three committee members sharing one, two, and three ties, respectively, with the CEO, then the resulting affiliation index equals two. In constructing our index, we assume that all ties contribute equally to a director’s partiality to the CEO. Although a more sophisticated measure might reflect the relative importance of different ties, our equal- weighted measure has the advantage of being simple, transparent, and independent of subjective judgment. In our analyses, we compare two different indices: a conventional index, which considers only the conventional ties (as specified by the IRRC), and a conventional-and-social index, which considers both conventional and social ties. 32 The scope of this final catchall is limited to (voluntary) proxy disclosures.
