Boards and Company Performance ‐ Research Challenges the Conventional Wisdom

Boards and Company Performance ‐ Research Challenges the Conventional Wisdom Lex Donaldson and James H. Davis here is a belief that companies would perform better if their boards of directors were to be made up of independent outsiders, that is non-executives. Research to date challenges that idea. The research results overall fail to find the expected superior effects of having a board composed mostly of non-executive outsiders who are independent of executive management. There is even some evidence that company performance may benefit from boards of mostly executive members. Internationally there is a large, though by no means conclusive, literature on corporate governance. We shall attempt to highlight a few salient points from the results of research into corporate governance. The results of this research tend not to support the idea that a board of directors independent of management produces better outcomes for the corporation. It provides no basis for prescribing that corporations must have a board composed of mainly non-executive directors. Moreover, there is some evidence that nonexecutive boards produce worse outcomes for their companies. Therefore we believe that it would be unwise at the present time to go along with calls to require boards of corporations to be dominated by non-executives. We would caution against this http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Wiley

Boards and Company Performance ‐ Research Challenges the Conventional Wisdom

Corporate Governance, Volume 2 (3) – Jul 1, 1994

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Publisher
Wiley
Copyright
Copyright © 1994 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0964-8410
eISSN
1467-8683
DOI
10.1111/j.1467-8683.1994.tb00071.x
Publisher site
See Article on Publisher Site

Abstract

Lex Donaldson and James H. Davis here is a belief that companies would perform better if their boards of directors were to be made up of independent outsiders, that is non-executives. Research to date challenges that idea. The research results overall fail to find the expected superior effects of having a board composed mostly of non-executive outsiders who are independent of executive management. There is even some evidence that company performance may benefit from boards of mostly executive members. Internationally there is a large, though by no means conclusive, literature on corporate governance. We shall attempt to highlight a few salient points from the results of research into corporate governance. The results of this research tend not to support the idea that a board of directors independent of management produces better outcomes for the corporation. It provides no basis for prescribing that corporations must have a board composed of mainly non-executive directors. Moreover, there is some evidence that nonexecutive boards produce worse outcomes for their companies. Therefore we believe that it would be unwise at the present time to go along with calls to require boards of corporations to be dominated by non-executives. We would caution against this

Journal

Corporate GovernanceWiley

Published: Jul 1, 1994

References

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