Switching from a Managing to a Monitoring Function on the Board : Is a Cooling-Off Period Necessary?

This paper addresses the question whether immediately switching from a managing to a monitoring function within a board is beneficial for a company or whether it should be regulated by a cooling-off period. On the one hand, companies have a mutual economic interest in continuously having a person's experience within the board by switching him directly from a managing to a monitoring function. On the other hand, a cooling-off period may help to reduce the problem that is encountered when a person monitors processes and strategies which he himself has formerly developed and implemented. The analysis finds no definite evidence for or against an immediate switch from a managing to a monitoring board function. Nevertheless, the findings suggest that the effects of switching immediately from a managing to a monitoring function depend on the position subsequently taken in the board, e.g., modifications in present regulation should prohibit an opting-out when immediately serving as chairman of a monitoring body