Why Do Boards Exist? Governance Design in the Absence of Corporate Law

Why Do Boards Exist? Governance Design in the Absence of Corporate Law

Mike Burkart, Salvatore Miglietta, Charlotte Ostergaard

Series number :

Serial Number: 
504/2017

Date posted :

April 25 2017

Last revised :

December 21 2020
SSRN Share

Keywords

  • Board roles • 
  • ownership structure • 
  • voting • 
  • conflicts of interest • 
  • authority

We study when firms choose to install boards and their roles in a historical setting where neither boards nor their duties are mandated by law. Boards arise in firms with large, heterogenous shareholder bases. We propose that an important role of boards is to mediate between heterogenous shareholders with divergent interests.

Voting restrictions are common and ensure that boards are representative and not captured by large blockholders. Boards are given significant powers to both mediate and monitor management, but few boards mainly advise. Firms with boards are more prevalent in regions with a greater supply of small-investor finance.

Authors

Real name:
Fellow, Research Member
London School of Economics and Political Science
Prof.
Real name:
Salvatore Miglietta
Norwegian Business School