The Cadbury Committee, Corporate Performance, and Top Management Turnover


  • Jay Dahya,

  • John J. McConnell,

  • Nickolaos G. Travlos

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    • Dahya and McConnell are from Krannert Graduate School of Management, Purdue University, and Travlos is from Athens Laboratory of Business Administration and Cardiff Business School, Cardiff University. This paper has benefited from the helpful comments and suggestions of George Benston, David Denis, Diane Denis, Julian Franks, Paul Marsh, Robert Parrino, Ronan Powell, David Power, Raghu Rau, Andrew Stark, Jason Xiao, and seminar participants at Emory University, Purdue University, the University of Iowa, the University of Oklahoma, the EFMA (Paris) and the FMA (Orlando). McConnell acknowledges financial support from the Center for International Business Education and Research (CIBER) at Purdue University. Dahya acknowledges financial support received from the Nuffield Foundation. Travlos acknowledges financial support received from the Kitty Kyriacopoulos Chair in Finance.


In 1992, the Cadbury Committee issued the Code of Best Practice which recommends that boards of U.K. corporations include at least three outside directors and that the positions of chairman and CEO be held by different individuals. The underlying presumption was that these recommendations would lead to improved board oversight. We empirically analyze the relationship between CEO turnover and corporate performance. CEO turnover increased following issuance of the Code; the negative relationship between CEO turnover and performance became stronger following the Code's issuance; and the increase in sensitivity of turnover to performance was concentrated among firms that adopted the Code.