The Board of Directors

  • Ettore Croci


Boards exist because they are an optimal response to the conflicts of interests between shareholders and managers, and between types of shareholders. While there is a wide consensus on this point, the literature is more divided on how directors should split their time and energies between monitoring and advising the managers. The monitoring role has been considered the primary duty of the directors for a long time, but recent studies show that directors devote a fair share of their time to advising managers. However, directors can effectively advise managers only when managers share information. Managers are reluctant to do this because directors can use the shared information to monitor them. The chapter also presents the main difference between one-tier and two-tier boards and discusses director election .


Board Monitoring Advisor Election One-tier Two-tier Information 


  1. Adams, R. B. (2009). Asking Directors About Their Dual Roles. ECGI Working paper.Google Scholar
  2. Adams, R. B. (2017). Boards, and the directors who sit on them. In B. E. Hermalin & M. S. Weisbach (Eds.), The handbook of the economics of corporate governance (Chap. 6, Vol. 1, pp. 291–382). Amsterdam: North-Holland. Google Scholar
  3. Adams, R. B., & Ferreira, D. (2007). A theory of friendly boards. The Journal of Finance, 62(1), 217–250. Google Scholar
  4. Adams, R. B., Hermalin, B. E., & Weisbach, M. S. (2010). The role of boards of directors in corporate governance: A conceptual framework and survey. Journal of Economic Literature, 48(1), 58–107. Scholar
  5. Aggarwal, R., Dahiya, S., & Prabhala, N. (2016). The power of shareholder votes: Evidence from uncontested director elections, Robert H. Smith School Research Paper No. RHS 2609532; Georgetown McDonough School of Business Research Paper No. 2609532.Google Scholar
  6. Ahern, K. R., & Dittmar, A. K. (2012). The changing of the boards: The impact on firm valuation of mandated female board representation. The Quarterly Journal of Economics, 127(1), 137–197. /oup/backfile/content_public/journal/qje/127/1/10.1093_qje_qjr049/4/qjr049.pdfCrossRefGoogle Scholar
  7. Armstrong, C. S., Guay, W. R., & Weber, J. P. (2010). The role of information and financial reporting in corporate governance and debt contracting. Journal of Accounting and Economics, 50(2), 179–234. CrossRefGoogle Scholar
  8. Assonime-Emittenti Titoli. (2018). La corporate governance in Italia: autodisciplina, remunerazioni e comply-or-explain (anno 2017), note e Studi 2/18.Google Scholar
  9. Balsmeier, B., Fleming, L., & Manso, G. (2017). Independent boards and innovation. Journal of Financial Economics, 123(3), 536–557. CrossRefGoogle Scholar
  10. Bange, M. M., & Mazzeo, M. A. (2004). Board composition, board effectiveness, and the observed form of takeover bids. The Review of Financial Studies, 17(4), 1185–1215. /oup/backfile/content_public/journal/rfs/17/4/10.1093_rfs_hhh001/3/hhh001.pdf CrossRefGoogle Scholar
  11. Belot, F., Ginglinger, E., Slovin, M. B., & Sushka, M. E. (2014). Freedom of choice between unitary and two-tier boards: An empirical analysis. Journal of Financial Economics, 112(3), 364–385. Scholar
  12. Berle, A. A., & Means, G. C. (1932). The modern corporation and private property. New York: Macmillan.Google Scholar
  13. Black, B., & Kim, W. (2012). The effect of board structure on firm value: A multiple identification strategies approach using Korean data. Journal of Financial Economics, 104(1), 203–226. CrossRefGoogle Scholar
  14. Bouwman, C. H. S. (2011). Corporate governance propagation through overlapping directors. The Review of Financial Studies, 24(7), 2358–2394. /oup/backfile/content_public/journal/rfs/24/7/10.1093_rfs_hhr034/2/hhr034.pdfCrossRefGoogle Scholar
  15. Bowen, D. E., Frésard, L., & Taillard, J. P. (2017). What’s your identification strategy? Innovation in corporate finance research. Management Science, 63(8), 2529–2548. CrossRefGoogle Scholar
  16. Brav, A., Jiang, W., Partnoy, F., & Thomas, R. (2008). Hedge fund activism, corporate governance, and firm performance. The Journal of Finance, 63(4), 1729–1775. CrossRefGoogle Scholar
  17. Brickley, J. A., & Zimmerman, J. L. (2010). Corporate governance myths: Comments on Armstrong, Guay, and Weber. Journal of Accounting and Economics 50(2), 235–245. CrossRefGoogle Scholar
  18. Burkart, M., Miglietta, S., & Ostergaard, C. (2017). Why Do Boards Exist? Governance Design in the Absence of Corporate Law. Swedish House of Finance Research Paper No. 17-8, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 504/2017.Google Scholar
  19. Cai, J., Garner, J. L., & Walking, R. A. (2009). Electing directors. The Journal of Finance, 64(5), 2389–2421. Scholar
  20. Cai, J., Garner, J. L., & Walkling, R. A. (2013). A paper tiger? An empirical analysis of majority voting. Journal of Corporate Finance, 21, 119–135. CrossRefGoogle Scholar
  21. Chakraborty, A., & Yilmaz, B. (2017). Authority, consensus, and governance. The Review of Financial Studies, 30(12), 4267–4316. /oup/backfile/content_public/journal/rfs/30/12/10.1093_rfs_hhx068/2/hhx068.pdfCrossRefGoogle Scholar
  22. Cohen, A., & Wang, C. C. (2013). How do staggered boards affect shareholder value? Evidence from a natural experiment. Journal of Financial Economics, 110(3), 627–641. CrossRefGoogle Scholar
  23. Cornelli, F., Kominek, Z., & Ljungqvist, A. (2013). Monitoring managers: Does it matter? The Journal of Finance, 68(2), 431–481. CrossRefGoogle Scholar
  24. De Haas, R., Ferreira, D., & Kirchmaier, T. (2017). The Inner Workings of the Board: Evidence from Emerging Markets. CentER Discussion Paper Series No. 2017-016.Google Scholar
  25. Del Guercio, D., Seery, L., & Woidtke, T. (2008). Do boards pay attention when institutional investor activists “just vote no”? Journal of Financial Economics, 90(1), 84–103. CrossRefGoogle Scholar
  26. Demb, A., & Neubauer, F. F. (1992). The corporate board: Confronting the paradoxes. Oxford: Oxford University Press.Google Scholar
  27. Duchin, R., Matsusaka, J. G., & Ozbas, O. (2010). When are outside directors effective? Journal of Financial Economics, 96(2), 195–214. CrossRefGoogle Scholar
  28. Erel, I., Stern, L. H., Tan, C., & Weisbach, M. S. (2018). Selecting Directors Using Machine Learning. Fisher College of Business Working Paper No. 2018-03-005Google Scholar
  29. Falato, A., Kadyrzhanova, D., & Lel, U. (2014). Distracted directors: Does board busyness hurt shareholder value? Journal of Financial Economics, 113(3), 404–426. Scholar
  30. Faleye, O., Hoitash, R., & Hoitash, U. (2011). The costs of intense board monitoring. Journal of Financial Economics, 101(1), 160–181. CrossRefGoogle Scholar
  31. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law & Economics, 26(2), 301–325. CrossRefGoogle Scholar
  32. Fauver, L., & Fuerst, M. E. (2006). Does good corporate governance include employee representation? Evidence from German corporate boards. Journal of Financial Economics, 82(3), 673–710. CrossRefGoogle Scholar
  33. Fischer, P. E., Gramlich, J. D., Miller, B. P., & White, H. D. (2009). Investor perceptions of board performance: Evidence from uncontested director elections. Journal of Accounting and Economics, 48(2), 172–189. CrossRefGoogle Scholar
  34. Fos, V. (2017). The disciplinary effects of proxy contests. Management Science, 63(3), 655–671. CrossRefGoogle Scholar
  35. Fos, V., Li, K., & Tsoutsoura, M. (2018). Do director elections matter? The Review of Financial Studies, 31(4), 1499–1531. /oup/backfile/content_public/journal/rfs/31/4/10.1093_rfs_hhx078/3/hhx078.pdfCrossRefGoogle Scholar
  36. Fos, V., & Tsoutsoura, M. (2014). Shareholder democracy in play: Career consequences of proxy contests. Journal of Financial Economics, 114(2), 316–340. CrossRefGoogle Scholar
  37. Fracassi, C., & Tate, G. (2012). External networking and internal firm governance. The Journal of Finance, 67(1), 153–194. CrossRefGoogle Scholar
  38. Garner, J., Kim, T., & Kim, W. (2017). Boards of directors: A literature review. Managerial Finance, 43, 1189–1198. CrossRefGoogle Scholar
  39. Harris, M., & Raviv, A. (2008). A theory of board control and size. The Review of Financial Studies, 21(4), 1797–1832. /oup/backfile/content_public/journal/rfs/21/4/10.1093_rfs_hhl030/1/hhl030.pdfCrossRefGoogle Scholar
  40. Hermalin, B. E., & Weisbach, M. S. (1998). Endogenously chosen boards of directors and their monitoring of the CEO. The American Economic Review, 88(1), 96–118. Google Scholar
  41. Hermalin, B. E., & Weisbach, M. S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9, 7–26.Google Scholar
  42. Holmstrom, B. (2005). Pay without performance and the managerial power hypothesis: A comment. Journal of Corporation Law, 30, 703–713.Google Scholar
  43. Iliev, P., Lins, K. V., Miller, D. P., & Roth, L. (2015). Shareholder voting and corporate governance around the world. The Review of Financial Studies, 28(8), 2167–2202. /oup/backfile/content_public/journal/rfs/28/8/10.1093_rfs_hhv008/4/hhv008.pdfCrossRefGoogle Scholar
  44. Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831–880. CrossRefGoogle Scholar
  45. Jenter, D., & Kanaan, F. (2015). Ceo turnover and relative performance evaluation. The Journal of Finance, 70(5), 2155–2184. CrossRefGoogle Scholar
  46. Jenter, D., Schmid, T., & Urban, D. (2018). Does Board Size Matter? AFA 2019, 2018 SFS Cavalcade North America, 2018 CEPR Symposium.Google Scholar
  47. Kim, E. H., Maug, E., & Schneider, C. (2018). Labor representation in governance as an insurance mechanism. Review of Finance, 22(4), 1251–1289. /oup/backfile/content_public/journal/rof/22/4/10.1093_rof_rfy012/2/rfy012.pdfCrossRefGoogle Scholar
  48. Kim, K., Mauldin, E., & Patro, S. (2014). Outside directors and board advising and monitoring performance. Journal of Accounting and Economics, 57(2), 110–131. CrossRefGoogle Scholar
  49. Levit, D. (2017). Advising shareholders in takeovers. Journal of Financial Economics, 126(3), 614–634. CrossRefGoogle Scholar
  50. Masulis, R. W., & Mobbs, S. (2014). Independent director incentives: Where do talented directors spend their limited time and energy? Journal of Financial Economics, 111(2), 406–429. CrossRefGoogle Scholar
  51. Monks, R. A., & Minnow, N. (2011). Corporate governance (5th ed.). New York: Wiley.Google Scholar
  52. Nguyen, B. D., & Nielsen, K. M. (2010). The value of independent directors: Evidence from sudden deaths. Journal of Financial Economics, 98(3), 550–567. CrossRefGoogle Scholar
  53. Raheja, C. G. (2005). Determinants of board size and composition: A theory of corporate boards. Journal of Financial and Quantitative Analysis, 40(2), 283–306. CrossRefGoogle Scholar
  54. Schmid, T., & Urban, D. (2018). The Economic Consequences of a Glass-Ceiling: Women on Corporate Boards and Firm Value. AFA 2016 San Francisco Meetings Paper.Google Scholar
  55. Schwartz-Ziv, M., & Weisbach, M. S. (2013). What do boards really do? Evidence from minutes of board meetings. Journal of Financial Economics, 108(2), 349–366. CrossRefGoogle Scholar
  56. Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52, 737–783.CrossRefGoogle Scholar
  57. Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations. Chicago: University of Chicago Press.Google Scholar
  58. Song, F., & Thakor, A. V. (2006). Information control, career concerns, and corporate governance. The Journal of Finance, 61(4), 1845–1896. CrossRefGoogle Scholar
  59. Thomsen, S., & Conyon, M. (2012). Corporate governance: Mechanisms and systems (1st ed.). Maidenhead: McGraw-Hill Higher Education.Google Scholar
  60. Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53(1), 113–142. CrossRefGoogle Scholar
  61. Villalonga, B., Trujillo, M. A., Guzmán, A., & Cáceres, N. (forthcoming). What are boards for? Evidence from closely held firms in Colombia. Financial Management.
  62. von Meyerinck, F., Oesch, D., & Schmid, M. (2016). Is director industry experience valuable? Financial Management, 45(1), 207–237. CrossRefGoogle Scholar
  63. Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581–606. CrossRefGoogle Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Ettore Croci
    • 1
  1. 1.Università Cattolica del Sacro CuoreMilanoItaly

Personalised recommendations