The impact of deregulation on the board structure of electric utilities

This study analyzes the impact of deregulation on board structure by comparing the boards of electric utilities before and after the passage of the Energy Policy Act (EPACT). In addition, the study assesses whether board structure has an impact on firm performance during the period of transition. I find that electric utilities do change their board structure in response to their new operating environment. Boards are smaller and more independent in the later period. Also, even though the number of outside directors stays the same, there are notable changes in the character of these directors. The number of executives from large firms and the number of directors with political backgrounds are both significantly greater after the passage of EPACT. These results are consistent with Williamson's hypothesis that firms will change the composition and character of their board in response to a change in the firm's operating environment. Further investigation reveals that even though utilities' boards change following deregulation, the pace of change is slow, and during the four-year period immediately following the passage of EPACT firm performance is related to board character. These results suggest that while firms reconfigure their boards in response to a change in their operating environment, there may be impediments that prevent them from adjusting their boards too quickly.