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Whistle-Blowers on the Board? The Role of Independent Directors in Cartel Prosecutions

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Market reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors on their boards. Independent directors serving on cartel-indicted firms are penalized by losing board seats and vote support at other firms where they serve. Notably, firms with more independent directors are more likely to cooperate with prosecutors through leniency programs. They are also more likely to dismiss chief executive officers after cartel indictments. Our study shows that cartel prosecution imposes significant, market-based personal costs on independent directors and that they take actions to mitigate those costs. Crompton is a prime example of a company whose independent board of directors decided to leave no stone unturned in its commitment to investigate, identify and report antitrust violations…. [T]he board’s strategy resulted in the company receiving an extraordinary reduction in its rubber chemicals fine…. Crompton’s early cooperation allowed the Division to conserve and focus its resources and to immediately put additional pressure on other subject companies and individuals to cooperate. (Hammond 2006)

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