Why Do Boards Exist? Governance Design in the Absence of Corporate Law
75 Pages Posted: 25 Apr 2017 Last revised: 18 Aug 2021
Date Written: July 14, 2021
We study when firms choose to install boards and their roles in a historical setting where neither boards nor their duties are mandated by law. Boards arise in firms with large, heterogenous shareholder bases. We propose that an important role of boards is to mediate between heterogenous shareholders with divergent interests. Voting restrictions are common and ensure that boards are representative and not captured by large blockholders. Boards are given significant powers to both mediate and monitor management, and these roles are intrinsically linked.
Keywords: Board roles, mediation, conflicts of interest, ownership structure, voting, authority
JEL Classification: G3, D23, K2, N80.
Suggested Citation: Suggested Citation