Abstract and Keywords
This chapter explores issues relating to the board of directors. Focusing on the formal model of corporate governance, it considers why corporate decisions are made through the exercise of hierarchical corporate authority instead of consensus. Specifically, it examines the survival advantage that a bureaucratic hierarchy confers on a large corporation and which of its constituencies should elect the board. It first outlines the key functions of the board of directors drawing on the unitary and dual board models. It then asks why corporations are run by boards of directors rather than by shareholders or the chief executive officer. It discusses why ownership and control are separated in the corporate form, with special emphasis on the US experience, along with the economic rationale for vesting control in a group rather than in an individual. Finally, it analyses how boards fail and looks at the reforms that have been implemented to improve their performance.
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