Working Paper: NBER ID: w17509
Authors: Miriam Schwartz; Michael Weisbach
Abstract: We analyze a unique database from a sample of real-world boardrooms - minutes of board meetings and board-committee meetings of eleven business companies for which the Israeli government holds a substantial equity interest. We use these data to evaluate the underlying assumptions and predictions of models of boards of directors. These models generally fall into two categories: "managerial models" assume boards play a direct role in managing the firm, and "supervisory models" assume that boards' monitor top management but do not make business decisions themselves. Consistent with the supervisory models, our minutes-based data suggest that boards spend most of their time monitoring management: 67% of the issues they discussed were of a supervisory nature, they were presented with only a single option in 99% of the issues discussed, and they disagreed with the CEO only 3.3% of the time. In addition, managerial models describe boards at times as well: Boards requested to receive further information or an update for 8% of the issues discussed, and they took an initiative with respect to 8.1% of them. In 63% of the meetings, boards took at least one of these actions or did not vote in line with the CEO.
Keywords: boards of directors; corporate governance; supervisory roles; managerial roles
JEL Codes: G3; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| boards' actions (G34) | supervisory capacity (M54) |
| disagreements with CEO (M12) | alignment with management (M54) |
| presentation of alternatives (D79) | decision-making by boards (G34) |
| initiatives taken by boards (G34) | focus on supervisory tasks (M54) |
| boards' active engagement (G34) | characterization as active monitors (E63) |