Chapter 4: Corporate Boards of Directors: A Precautionary Perspective
* Oliver E. Williamson The past decade has witnessed a resurgence of interest in corporate boards of directors and corporate governance more generally. Business, economics and law journals as well as the business and popular presses have all participated in this revival. Book length treatises have appeared as well. Partly this ﬂurry of interest has been brought on by corporate governance abuses and disputes over the eﬃcacy of public policy responses thereto, of which the Sarbanes–Oxley Act is most notable. Given the many values at stake, a consensus has been elusive. This chapter does not attempt a consensus but addresses two questions, the answers to which are pertinent to an accurate understanding of the board of directors: Should boards of directors in the modern corporation be reconstituted as vigilant monitors? Should such boards, additionally or instead, be active participants in the management of the ﬁrm? I examine these proposals from an eﬃciency perspective by applying the lens of contract/governance in combination with organization theory (of a meso-organizational kind) and conclude that (1) serious implementation problems arise with both the vigilant monitoring and active management participation proposals; (2) other purposes served by boards are properly included in the calculus; and (3) the quest for good governance is and will remain an ongoing challenge in every large corporation whatsoever. I begin in section 1 by examining debt and equity as rules-based and discretionary governance structures, respectively, where the board of directors is interpreted as a means by which to provide...
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