Video Friday: Margaret Blair – Making The Hard Call: The Unheralded Role of Corporate Boards of Directors

MargaretBlairThe UBC Faculty of Law welcomed its fourth Fasken Martineau Visiting Senior Scholar, Professor Margaret Blair. Professor Blair is an economist who focuses on management law and finance. Her current research focuses on five areas: team production and the legal structure of business organizations, legal issues in the governance of supply chains, the role of private sector governance arrangements in contract enforcement, the legal concept of corporate “personhood,” the historical treatment of corporations by the Supreme Court, and the problem of excessive leverage in financial markets.

Webcast sponsored by the Irving K. Barber Learning Centre and hosted by the Faculty of Law at the University of British Columbia. It has become part of the accepted corporate governance wisdom in the U.S., as well as in numerous other countries, that boards of directors of publicly-traded corporations should include some, and perhaps a majority of “independent” directors. Yet to-date there has been no consistent evidence that adding independent directors to boards improves corporate performance.

Many problems in corporations require a complex balancing act, a weighing of competing interests. Because such problems, by their nature, involve trade-offs and huge uncertainties, we should expect that the calls that directors make will deviate from some hypothetically optimal values in a more-or-less random way, sometimes leading to higher sales growth sometimes not, sometimes producing higher share value, and sometimes not.

Research on the role of directors almost universally starts from the premise that corporate boards are supposed to be the “agents” of shareholders, whose job is to maximize the share value of the companies. This principal-agent approach, however, leaves out the fact that no one can be certain they will get what they want if the decision gets bumped “upstairs.”

The board’s emphasis historically was on balancing competing interests of constituencies, administering, and resolving disputes, not monitoring. Worth paying attention to history. Boards get involved when decisions can’t be made below. Helps team members solve joint production problems.  I wish there would have been a question & answer session.

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