Communication and Decision-Making in Corporate Boards
Boston College - Carroll School of Management
May 1, 2014
Review of Financial Studies, Vol. 27, No. 5, May 2014
Time constraints, managerial power, and reputational concerns can impede board communication. This paper develops a model where board decisions depend on directors' effort in communicating their information to others. I show that directors communicate more effectively when pressure for conformity is stronger, i.e., when directors are more reluctant to disagree with each other. Hence, open ballot voting can be optimal, even though it induces directors to disregard their information and conform their votes to others. I also show that communication can be more efficient when directors' preferences are more diverse. The analysis has implications for executive sessions, transparency, and committees.
Number of Pages in PDF File: 56
Keywords: board of directors, collective decision-making, communication, executive sessions, open and secret ballot voting
JEL Classification: D71, D72, D74, D82, D83, G34, K22
Date posted: November 21, 2010 ; Last revised: April 24, 2015
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