The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors

Using eight thousand public companies, we study the impact of the Sarbanes-Oxley Act (SOX) of 2002 and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased directors' workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post-SOX and Director and Officer (D&O) insurance premiums have doubled. Directors post-SOX are more likely to be lawyers/consultants, financial experts, and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.