How can boards be chosen through a process partially controlled by the CEO, yet,
in many instances, still be effective monitors of him? We offer an answer based on
a model in which board effectiveness is a function of its independence. This, in
turn, is a function of negotiations (implicit) between existing directors and the
CEO over who will fill vacancies on the board. The CEO's bargaining power over the
board-selection process comes from his perceived ability relative to potential successors.
Many empirical findings about board structure and performance arise as equilibrium
phenomena of this model.