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18 Oct. 2018 | Comments (0)
The authors of the book “Outsourcing the Board: How Board Service Providers Can Improve Corporate Governance” recently sat down with Governance Center Executive Director Doug Chia to discuss their unique idea for a new corporate board model. A video of that discussion is available on-demand here. The book discussion video is related to a September 21, 2018 roundtable on the book at UCLA Law School that was co-sponsored by The Conference Board and UCLA’s Lowell Milken Institute for Business Law and Policy.
In the book published by Cambridge University Press, Professors Stephen Bainbridge of UCLA Law School and M. Todd Henderson of University of Chicago Law School set out trying to answer the question: Why does the law require governance to be delivered through individual board members? Their book, which also gives a short history of U.S. corporate boards and corporate governance, posits that board service providers could complement and, in some cases, even replace current individual directors.
“The question is would you [as a public company] rather deal with 12 people you hire off the street or a team of professionals who work for a firm,” Bainbridge said in the video. “One of the big plusses to board service providers is the economies of scale.”
While Bainbridge expects there would be resistance from current professional directors who sit on 10-12 boards, he doesn’t expect much pushback from the overall director community. “But, the stakeholders you have to be most concerned about are the large institutional investor and CEOs,” he said. “The pitch you would make to them is the current board model doesn’t work. And here is an alternative.”
“Currently, companies hire accounting consultants, law firms, and business consulting firms routinely when they need help,” Henderson said. “When there’s questions about governance, companies usually hire individuals. But why not just hire a board service provider instead. That group of individuals from that firm would meet with the CEO and look a lot like the current board.”
However, there is one catch to the board service provider idea that both authors agree could be a big obstacle: Right now, it’s illegal to have a company serve as a director of a public company. So, states would have to modify laws to allow such an idea to go forward. Watch the video to find out how the authors discuss the application of their idea and face critiques from academic and corporate colleagues.