As I mentioned a while back, I am working on a project on shareholder versus director primacy in New Zealand company law. In the course of it, I was reading Professor Susan Watson's very helpful article The Board of Directors, in Company and Securities Law in New Zealand 297 (John Farrar & Susan Watson eds., 2d ed. 2013). In it, she observes that "A director must be a natural person." (p. 321). The same thibng is true in the USA, of course, but why?
Professor Todd Henderson and I have an article in press at the Stanford Law Review, entitled Boards-R-Us: Reconceptualizing Corporate Boards, in which we challenge the requirement that bioards be comprised of natural persons:
State corporate law requires director services be provided by “natural persons.” This Article puts this obligation to scrutiny, and concludes that there are significant gains that could be realized by permitting firms (be they partnerships, corporations, or other business entities) to provide board services. We call these firms “board service providers” (BSPs). We argue that hiring a BSP to provide board services instead of a loose group of sole proprietorships will increase board accountability, both from markets and judicial supervision. The potential economies of scale and scope in the board services industry (including vertical integration of consultants and other board member support functions), as well as the benefits of risk pooling and talent allocation, mean that large professional director services firms may arise, and thereby create a market for corporate governance distinct from the market for corporate control. More transparency about board performance, including better pricing of governance by the market, as well as increased reputational assets at stake in board decisions, means improved corporate governance, all else being equal. But our goal in this Article is not necessarily to increase shareholder control over firms – we show how a firm providing board services could be used to increase managerial power as well. This shows the neutrality of our proposed reform, which can therefore be thought of as a reconceptualization of what a board is rather than a claim about the optimal locus of corporate power.