Beyond the Board of Directors
53 Pages Posted: 23 Jul 2011 Last revised: 22 Sep 2011
Date Written: July 22, 2011
The law of corporate governance places the board of directors at the top of the corporate decisionmaking structure. So, accountability for corporate decisions rests primarily on the shoulders of part-time employees who lack the time and thorough knowledge of the firm necessary to perform the board’s duties effectively. Corporate governance scholarship is similarly preoccupied with the board of directors. Scholars have debated whether to enhance or diminish the board’s authority within the firm, but all accept that a board of directors should preside over corporate decisionmaking. This Article argues that scholars on both sides of the debate have missed the mark. The modern board of directors is ineffective to achieve its purposes. The time has come to envision a world beyond the board of directors.
In the modern public corporation, the board has been marginalized in favor of the powers exercised by the firm’s investors and senior officers. That reality is the product of market choices and is part of the natural evolution of corporate governance. Modern regulatory responses to various corporate scandals stand in the way of that sensible evolution toward more effective corporate governance. While the board structure we have now may be the product of prior market choices, it is the law, not the market, that preserves the vestigial board of directors’ role at the top of the corporate hierarchy. This Article argues that obstacles to the evolution of corporate governance should be removed and sketches a path that evolution may take leading to the eventual elimination of the board of directors. Eliminating the board of directors would mark a fundamental shift in the understanding of corporate governance, but, at the same time, would realign the law of corporate governance with the natural evolution the market has already initiated.
Keywords: corporate law, board of directors, corporate governance, creditors, shareholders, securities law
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