An in-depth look at the forces that turned boardrooms inside out.
The now-conventional understanding of boards of directors is that they reduce the costs associated with the separation of ownership and control. Elected by shareholders, directors are supposed to “monitor” the managers in view of shareholder interests.
This view has had a profound impact on the answer to the question: Who should serve on the board of a large public firm? In the 1950s, the answer was that boards should consist of the firm’s senior officers, some outsiders with deep connections to the firm (such as its banker or its senior outside lawyer), and a few directors who were nominally independent but handpicked by the CEO. Today, the answer is “independent directors,” whose independence is buttressed by a range of rule-based and structural mechanisms. Inside directors are a dwindling fraction; the senior outside lawyer serving on the board is virtually an extinct species.
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