Strengthening Boards through Diversity - A Two Sided Market that Can Be Effectively Serviced by Intermediaries

Abstract

The current focus on the monitoring role of the board has come under much criticism. Independent directors play a significant role within this model. However, their ability to truly function independently has been rightly questioned in the last decade. Independent directors are impeded by two main problems: lack of access to relevant information, for which they are reliant on management; and the high likelihood of being captured (to varying degrees) by management. There have been various suggestions to fix these problems, ranging from enhancing board diversity to drastically reforming the current model of corporate boards. This article argues that diversity hold the promise of slowly reforming the current board model, so long as well-considered measures are taken. To that end, this article will propose a model of board governance that relies on ‘providers of supplemental board services’ as intermediaries to facilitate diversity on boards. This model will, on the one hand, allow companies to attract the best and diverse directors and on the other hand, allow board candidates (especially diverse candidates) to make well-informed decisions about taking on directorships. Eventually, companies may choose to share these reports with investors and the general public, to signal both their commitment to diversity and governance. Finally, the proposed model has the potential to drive boards to take on more of an advisory role along with the current focus on monitoring.

Keywords: Diversity, Boards Models, Monitoring, Executive Search Firms, Board Evaluations