'Captured Boards': The Rise of 'Super Directors' and the Case for a Board Suite

Abstract

Boards of public corporations in the United States are becoming increasingly independent, due to an effort to ensure that shareholders' interests in the company are protected. Yet, little attention has been given to the way that board members obtain and digest the information necessary for their independent decision-making. In this Article, we highlight how "independent" boards remain extremely dependent on management for the information they need to accomplish their role -- we classify as the "informational capture" of the board. We further describe how activist hedge funds identified this capture and are using what is commonly termed as "super directors" to mitigate it. Contrary to many who cast the rise of activist super directors in a negative light, we assert that super directors are not a new phenomenon, that they are not limited to activist nominees, and that they perform an important role in mitigating the board's informational capture. We further show that this positive role carries several important doctrinal implications for the way Delaware law treats these nominees. However, while activist super directors serve an important role in mitigating this capture, they are far from a perfect solution. Therefore, we propose a more systematic approach to mitigating the board's capture. Specifically, we call for the creation of a "Board Suite" -- a dedicated office within the board that would be in charge of independent data collection and dissemination -- therefore minimizing the dependence of the board on management for its information.

Keywords: hedge funds, shareholder activism, corporate governance, corporate law, board of directors, super directors

JEL Classification: K2, K22, G34, G38