Enhanced-independent directors and board monitoring tasks

Directors elected by the minority, as opposed to the controlling shareholder, are a corporate governance device that should help to reduce the agency costs existing between controlling shareholders and minority shareholders. Minority-elected directors are, arguably, the most independent in the category of ‘enhanced-independence directors’. This paper examines the relationship between having a minority-elected directors and the ability of the board to monitor management behaviours. Using a sample of the largest listed Italian companies, we find that minority-elected directors have a positive and statistically significant effect on board monitoring. We also document that the effect is higher when they are elected by institutional investors.