Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions

Stock market reactions to news of cartel prosecutions are muted when indicted rms have a high proportion of independent directors on their boards. This nding is robust to self-selection and is pronounced when independent directors hold more outside directorships and fewer stock options -when those directors have fewer economic ties to indicted rms. Results are even stronger when independent directors' appointments were attributable to SOX, preceded their CEO's own appointment, or followed class action suits|when directors have fewer ties to indicted CEOs. Independent directors serving on indicted rms are penalized by losing board seats and vote support in other firms. Firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs. They are also more likely to dismiss scandal-laden CEOs after public indictments. Our results show that cartel prosecution imposes signi cant personal costs onto independent directors and that they take actions to mitigate those costs. We argue that understanding these incentive-compatible dynamics is key in designing strategies for cartel detection and prosecution.