Why Unitary Boards Are Not Best Practice: A Case for Compound Boards

Abstract:     
The paper identifies the manifold conflicts of interest inherent in firms governed by a unitary board and how they exacerbate information overload and bounded rationality while paradoxically not providing sufficient information, independent of management, to direct, monitor, control, and change management. Compound boards introduce a division of power to mediate conflicts, allow access to superior feedback information from stakeholders, and enhance the cybernetic integrity of how a firm is governed. Transaction byte analysis is used to explain bounded rationality and identify how compound boards decompose decision making labour. Compound boards are identified as a necessary condition for reducing the cost of finance and developing (i) holonic architecture, (ii) social tensegrity, (iii) self-regulation and self-governance, (v) sustainable employee and/or other stakeholder participation in governance, and (vi) superior performance. This makes unitary boards inconsistent with convergence and knowledge intensive or network firms seeking to bond human capital with employee ownership.

Keywords: Compound boards, Cybernetics, Firm architecture, Governance, Holarchy, Holonic organisations, Mondragon, Requisite variety, Performance, Self-regulation, Social tensegrity, Unitary boards

JEL Classifications: B49, D21, 79, L29

Working Paper Series