Regulation and the Evolution of Corporate Boards: Monitoring, Advising or Window Dressing?

It is generally agreed that boards are endogenously determined institutions that serve both an oversight and advisory role in a firm. While oversight role of boards has been extensively studied relatively few studies have examined the advisory role of corporate boards. In this study we examine the participation of "political" directors on the boards of natural gas companies between 1930 and 1998. We focus on the 1938, and 1954 regulation and 1986 partial deregulation of the natural gas industry. Using datasets covering the period from 1930 to 1990 and 1978 to 1998, we test whether regulation and deregula tion altered the composition of companies’ boards as the firms’ environment changed. In particular, did regulation cause an increase and deregulation a decrease, in the number of "political" directors on corporate boards? We find evidence that the number of "political" directors increases as firms shift from market to political competition. Specifically the regulation of natural gas is associated with an increase in the number of "political" directors and the deregulation is associated with a decrease in the number of "political" directors on boards.