Boards of Directors: Utilizing Empirical Evidence in Developing Practical Prescriptions

Abstract

Boards of directors and corporate governance, more generally, continue to capture the attention of practitioners and scholars alike. There are now several reports, such as the Higgs Review, that offer both descriptions of past board structures and practices, and prescriptions for effective corporate governance practices going forward. This paper provides an overview of a series of research in which we have been involved that investigated the relationships between board structures (i.e. board composition, board leadership structure, board size and board member equity ownership) and firm financial performance. The paper demonstrates that not all current corporate governance ‘best practices’ are supported by empirical investigation. It also offer views on two means for installing independence in corporate boardrooms that hold considerable promise – installation of a lead independent director and reliance on an independent board of directors budget. Ultimately, however, no amount of structural prescription will guarantee effective boards of directors. Effective boards will install effective boardroom processes and be guided by individuals with the highest integrity and character.