Journal of Law, Economics, and Organization Advance Access originally published online on November 29, 2007
Journal of Law, Economics, and Organization 2008 24(2):247-272; doi:10.1093/jleo/ewm059
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Corporate Boards of Directors: In Principle and in Practice
University of California
* University of California, Berkeley. Email: owilliam{at}haas.berkeley.edu.
Numerous significant past and recent contributions to the literature on the efficacy of corporate boards of directors notwithstanding, a consensus has yet to develop. Partly this is due to a failure to agree on the ground rules, to which the use of different lenses through which to observe and interpret corporate boards is a contributing factor. This article examines corporate boards through the lens of contract/governance with the object of (1) uncovering the factors that are responsible for the intrinsic limitations of boards in monitoring and managing respects and, in consideration of these limitations, (2) advising on the merits of proposed reforms, to which credibility considerations and the integrity of delegation are relevant. A more accepting interpretation of practices regarded by many as problematic emerges, but not without qualifications and express concern for bad actors. (JEL G30, G34, K22, L14)
This article has benefited from the suggestions of Thomas Campbell, Henry Hansmann, Bengt Holmstrom, Joseph Mahoney, Roberta Romano, Robert Seamans, the referee, and the Editorial Board. It draws on papers that were presented at the University of Paris X, at the conference on Corporate Social Responsibility and Corporate Governance in Trento, at Concordia University in Montreal, at the 2006 Annual Conference of the International Society of New Institutional Economics, as the 2006 Malthus Lecture at Hatfield, United Kingdom, and at the Institutional Analysis Workshop at the University of California, Berkeley. (JEL G30, G34, K22, L14)