How consequential is a firm’s adoption of a poison pill for the firm’s directors? Prior research reflects three conflicting views about this question, which reflect conflicting views about pills themselves. The entrenchment view holds that poison pills entrench managers at shareholders’ expense, implying that directors who adopt pills face the risk of shareholder backlash and negative career consequences (E.g., Malatesta and Walkling (1988)). The shareholders’ interest view holds that pills serve primarily to improve the firm’s operations or increase expected takeover premiums, implying that directors who adopt pills are valuable to shareholders and should enjoy career benefits (E.g., Grossman and Hart (1980)). A third view is that the explicit adoption of a poison pill has little impact, either because the actual adoption of a pill is not meaningful (because all firms have latent pills) or because the director labor market does not react strongly to directors’ actions (E.g., Coates (2000)). This view implies that directors who adopt pills should experience neither negative nor positive career consequences.
Our paper examines the career outcomes for directors who serve on boards that adopt poison pills, and therefore sheds light on the debate over whether pills have negative, positive, or inconsequential effects on the firms that adopt them. We focus on the professional consequences to first-time pill adopters. These are directors who serve on boards that adopt poison pills, but who previously had never served on a pill-adopting board. We show that first-time pill adopters suffer negative career consequences. They receive lower vote support in subsequent board elections at both the pill-adopting firm and in their other directorships. They are more likely to leave the boards on which they currently serve, and are less likely to be appointed as new directors at other firms.
