The Structure of Corporate Boards

Abstract

Despite the fact that a general shareholder meeting is a supreme decision-making organ within a corporation, few challenge the argument by Jensen (1993) that a board of directors plays the most important role in an internal control system. In a modern corporate system separating management from ownership, “boards are the overlap between the small, powerful group that runs the company and huge, diffuse, and relatively powerless group that simply wishes to see the company run well” (Monks & Minow 1996: 167). Accordingly, the primary mission of the directors is to supervise the corporate management on behalf of shareholders by adhering to their duties of due care and loyalty. In other words, if the responsibility of senior managers is to make decisions at their own discretion regarding business operations, that of the board of directors is to exercise control over such management decisions. Only this division of power prevents the management from being the sole evaluator of the business performance as well as ensuring the safeguard of invested shareholder capital (Baysinger & Hoskisson 1990).