Why Do Boards Exist? Governance Design in the Absence of Corporate Law

64 Pages Posted: 26 Aug 2018

See all articles by Mike Burkart

Mike Burkart

Swedish House of Finance; London School of Economics and Political Science, Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Salvatore Miglietta

BI Norwegian Business School, Department of Finance

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance; European Corporate Governance Institute (ECGI)

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Date Written: August 2018

Abstract

We study how owners trade off the costs and benefits of boards in a historical setting where neither a board nor its duties are mandated by statutory law. From the powers given to boards, which vary across firms, we identify three different roles: Monitoring, mediation, and advice. Boards arise when the shareholder base includes numerous small shareholders, rather than from an absence of blockholders who are widespread in our firms. Voting restrictions prevent large shareholders from dominating boards and induce them to mediate between large and small shareholder interests, in addition to monitoring management.

Keywords: Boards, Corporate Governance, Collective Action, Authority, Private Contracting

JEL Classification: G3, D23, K2, N80

Suggested Citation

Burkart, Mike C. and Miglietta, Salvatore and Ostergaard, Charlotte, Why Do Boards Exist? Governance Design in the Absence of Corporate Law (August 2018). Available at SSRN: https://ssrn.com/abstract=3232198 or http://dx.doi.org/10.2139/ssrn.3232198

Mike C. Burkart

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

London School of Economics and Political Science, Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/default_static.htm

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Salvatore Miglietta

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, NO-0442
Norway

Charlotte Ostergaard (Contact Author)

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, 0442
Norway
+4746410520 (Phone)

HOME PAGE: http://home.bi.no/charlotte.ostergaard/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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