Added Perspective

Seven Myths of Boards of Directors

November 17, 2015

By David F. Larcker and Brian Tayan, Stanford Graduate School of Business

Corporate governance experts pay considerable attention to issues involving the board of directors. As the representatives of shareholders, directors monitor all aspects of the organization (its strategy, capital structure, risk, and performance), select top executives, and ensure that managerial decisions and actions are in the interest of shareholders and stakeholders.

 

Because of the scope of their role and the vast responsibility that comes with directorships, companies are expected to adhere to common best practices in board structure, composition, and procedure. Some of these practices are mandated by regulatory standards and stock exchange listing requirements; others are advocated by experts, practitioners, and observers who may or may not have a stake in the outcome. While some common practices contribute to board effectiveness, others have been shown to have no or a negative bearing on governance quality.

 

We review seven commonly accepted beliefs about boards of directors that are not substantiated by empirical evidence.

 

To read the paper authored by David F. Larcker (pictured above, top) and Brian Tayan (pictured above, bottom), click here.

 

 

Most Read

Top of the Agenda - Compensation
Fund board pay increases in 2023, MPI survey says

Independent mutual fund directors saw an increase in compensation in 2023, on average, although actual compensation levels and percentage adjustments in compensation continue to vary widely ...

10 Things
10 Ways…to improve fund board diversity

Mutual fund directors are increasingly interested in enhancing diversity on their boards. The following practical tips on improving board diversity are derived from discussions with directors, ...