Rethinking the Board of Directors: Getting Outside the Box

摘要

Corporations routinely outsource many functions, including functions central to corporate governance such as accounting, consulting, and legal services. To the best of our knowledge, only directors are statutorily required to be provided by natural persons rather than entities. When allowed to do so, professional service providers routinely form limited liability entities for a host of well-understood reasons. Compared to individual service providers, service-provider entities allow for risk sharing, greater investments in training and information, capturing economies of scale, and increased accountability through greater reputational stakes and better judicial supervision. If the state-law requirement that board members be natural persons were amended to permit all legal persons, including partnerships, LLCs, and corporations, to provide board services, we believe the market for directors and for governance could be fundamentally improved. A market for corporate governance, separate and distinct from the market for corporate control, could arise that would have the power to make boards the true fulcrum of corporate governance that the law presumes they should be.