Please Read In our paper, we document substantial changes to board structure and compositions around mergers, which are significantly different than for non-merging firms. For example, both director additions and departures are twice as likely around mergers. Of particular note, these changes are not limited to the largest deals (e.g., mergers of equals) as board changes occur across a wide spectrum of deals. Moreover, director additions are highlighted by significantly more unaffiliated directors (neither on the target nor acquirer boards) than retained target directors. The selection of these unaffiliated directors suggests their importance given the pool of available target and acquirer directors considered but not appointed to the post-merger board. These results highlight that board structure and composition are more dynamic for merging than non-merging firms.
We explore three motives for such board changes around mergers: firm need, CEO opportunism, and bargaining. First, changes to advising and monitoring needs associated with increased complexity around a merger may drive adjustments to the board (firm need motive). Second, board changes may occur for managerial welfare reasons as executives seek to establish a more managerial friendly board (CEO opportunism motive). Third, negotiations between acquirers and targets may determine the structure of the post-merger board (bargaining motive). We assess these motives for board changes by first focusing on individual attributes demanded for the post-merger board. Our results show that unaffiliated and target director additions around mergers reflect an increased demand for executive and deal specific skills (prior CEO, merger and board experience). This result is consistent with the notion that the addition of these traits is likely related to the increased monitoring and advising needs of the newly merged firm. Non-merger director selection, however, occurs for routine reasons such as diversity, financial expertise and retirement, suggesting that the drivers of director selection are distinct in mergers.