Are corporate boards awash in faux gatekeepers? This article, Board Gatekeepers, from a law professor at the University of Wisconsin, begins with a catalogue of infamous board failures to act as effective monitors of company conduct—including, in one case, a nascent scandal that continued for 11 years and another the subject of a successful Caremark claim. As framed by the author, the board plays a critical role, serving on behalf of the shareholders—and now perhaps also other stakeholders—to “ensure that the executive team is acting in the company’s best long-term interests,” in particular, “to ‘set up guardrails for the CEO’—that is, protect shareholders (and stakeholders) from corporate malfeasance.” Given the “structural power” that CEOs typically hold in the boardroom—such as through control over information and renominations—courts, regulators and investors often look to independent directors to act as a check on that power. Investors and regulators have also sought to address this power imbalance within the boardroom by introducing two key independent leadership roles—an independent board chair and a lead independent director. One or both of these “board gatekeepers” are now regular fixtures on boards, intended to add a “second layer of protection to the independence of the board” and signal and ensure “the existence of proper monitoring of management by the board.” The proliferation of these board gatekeepers, the author contends, “should have cemented board independence in what one can term its functional form: the ability to serve the crucial gatekeeping role that has been demanded of it.” But the inventory of recent scandals calls that conclusion into question. Are board gatekeepers really just window dressing?
by Cydney Posner The topic of director tenure has increasingly become the focus of both academics and investors. Some argue that long-term directors contribute deep knowledge of the company and provide experience, historical memory and continuity to the board — along with the gravitas sometimes necessary to challenge management. Others […]