Margaret Blair - Making The Hard Call: The Unheralded Role of Corporate Boards of Directors

Webcast sponsored by the Irving K. Barber Learning Centre and hosted by the Faculty of Law. It has become part of the accepted corporate governance wisdom in the U.S., as well as in numerous other countries, that boards of directors of publicly-traded corporations should include some, and perhaps a majority of "independent" directors. Yet to-date there has been no consistent evidence that adding independent directors to boards improves corporate performance. Many problems in corporations require a complex balancing act, a weighing of competing interests. Because such problems, by their nature, involve trade-offs and huge uncertainties, we should expect that the calls that directors make will deviate from some hypothetically optimal values in a more-or-less random way, sometimes leading to higher sales growth sometimes not, sometimes producing higher share value, and sometimes not. Research on the role of directors almost universally starts from the premise that corporate boards are supposed to be the "agents" of shareholders, whose job is to maximize the share value of the companies. This principal-agent approach, however, leaves out because no one can be certain they will get what they want if the decision gets bumped "upstairs."

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