Advising the Management
59 Pages Posted: 25 Aug 2018 Last revised: 18 Sep 2019
Date Written: September 17, 2019
We study the optimal size and composition of an advisory committee when shareholders differ in preferences and beliefs and strategically acquire and communicate information. If shareholders and management have similar objectives but disagree due to different beliefs, and information is cheap, the optimal advisory body includes all shareholders. Conversely, if agents have conflicting preferences or information is sufficiently costly, the optimal advisory body is a strict subset of shareholders. Thus, advisory voting (board) is optimal in the former (latter) case. If shareholders differ in beliefs and can trade, combining advisory shareholder voting with a diverse board can be optimal.
Keywords: advisory board, advisory voting, cheap talk, communication, heterogeneous beliefs, information aggregation
JEL Classification: D71, D74, D82, D83, G34
Suggested Citation: Suggested Citation