Assurance and Reassurance: The Role of the Board

Abstract

This paper argues that the central function of the board of directors is, and has always been, to provide assurance, and reassurance. The paper introduces a typology of four classes of board functions, legal, normative, descriptive, and utilitarian, and argues that none adequately captures the key function of the board, assurance. Not only is assurance at the heart of modern corporate governance; it has always been there, and, indeed, must be there because of a basic problem in organizational design, what I call the Governance Paradox (GP). One method of managing the Governance Paradox is to create pantheonic directorates. In order to understand the fundamental nature of my claim that what the board is all about is assurance, I then review the functioning of the very first joint-stock company of modern form, the Russia or Muscovy Company of Tudor England. I conclude by briefly arguing the utility of reconceptualizing the assurance problems of corporate governance in terms of an agent capitalism model of the firm.

Keywords: boards of directors, agency theory, assurance, corporate governance, collective action, heroes, prestige systems, certification contests, testaments

JEL Classification: A14, D21, D23, D63, D71, D72, D78, D83, G30, G34, K22, L22, M13