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Boards-R-Us: Reconceptualizing Corporate Boards

74 Pages Posted: 10 Jul 2013 Last revised: 14 Aug 2013

Stephen M. Bainbridge

University of California, Los Angeles (UCLA) - School of Law

M. Todd Henderson

University of Chicago - Law School

Date Written: July 10, 2013

Abstract

State corporate law requires director services be provided by “natural persons.” This Article puts this obligation to scrutiny, and concludes that there are significant gains that could be realized by permitting firms (be they partnerships, corporations, or other business entities) to provide board services. We call these firms “board service providers” (BSPs). We argue that hiring a BSP to provide board services instead of a loose group of sole proprietorships will increase board accountability, both from markets and judicial supervision. The potential economies of scale and scope in the board services industry (including vertical integration of consultants and other board member support functions), as well as the benefits of risk pooling and talent allocation, mean that large professional director services firms may arise, and thereby create a market for corporate governance distinct from the market for corporate control. More transparency about board performance, including better pricing of governance by the market, as well as increased reputational assets at stake in board decisions, means improved corporate governance, all else being equal. But our goal in this Article is not necessarily to increase shareholder control over firms – we show how a firm providing board services could be used to increase managerial power as well. This shows the neutrality of our proposed reform, which can therefore be thought of as a reconceptualization of what a board is rather than a claim about the optimal locus of corporate power.

Keywords: boards of directors, corporate governance, corporate law

Suggested Citation

Bainbridge, Stephen M. and Henderson, M. Todd, Boards-R-Us: Reconceptualizing Corporate Boards (July 10, 2013). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 646; UCLA School of Law, Law-Econ Research Paper No. 13-11. Available at SSRN: https://ssrn.com/abstract=2291065 or http://dx.doi.org/10.2139/ssrn.2291065

Stephen Mark Bainbridge

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-206-1599 (Phone)
310-825-6023 (Fax)

HOME PAGE: http://www.professorbainbridge.com

M. Todd Henderson (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-834-4168 (Phone)
773-702-0730 (Fax)

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