A while back, Todd Henderson and I came up with the idea of "board service providers." As the abstract to our article explains:
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.
Boards-R-Us: Reconceptualizing Corporate Boards (July 10, 2013). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 646; UCLA School of Law, Law-Econ Research Paper No. 13-11. Available at SSRN: http://ssrn.com/abstract=2291065.
Interestingly, under current U.K. law:
It is ... possible to appoint a company or similar corporate body that has its own legal identity as a director of another company. As partnerships and trusts do not have their own legal identity they, however, cannot be appointed as directors. The corporate body can be a company incorporated in the United Kingdom or anywhere else in the world.
The roles and responsibilities of a corporate director are exactly the same as for individual directors.
Sadly, however, the United Kingdom is now acting to ban BSPs:
The Act will also prohibit the use of corporate directors and require all directors of a UK company to be natural persons, with limited exceptions. The exceptions are due to be to be set out in regulations and, according to guidance issued by the UK Government in support of the Act, corporate directors may be permitted to continue to be appointed where their use “presents a low risk of illicit activity and is of high value to the running of the company.”
The explanation for this change strikes me as grossly inadequate:
... corporate directors can be used to help criminals that are looking to misuse companies. Where a corporate director of a UK company is a company incorporated offshore it can become difficult to identify who are the directors and shareholders of that offshore corporate director. Making the company’s ownership structure as opaque and complex as possible can serve to hide the true beneficial owners from law enforcement agencies. Nominee directors, corporate or individual, can also be used to conceal corporate control. Where individuals want to use a company to facilitate criminal activity they are unlikely to want to register themselves as a director and therefore may appoint a nominee director and/or an offshore corporate director.
Lots of good things can be abused. That doesn't mean we should ban them. Instead, we should regulate the potential abuses.
Louis Brandeis famously remarked that "Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." Instead of banning BSPs, the UK should take Brandeis' advice, and require transparency through an appropriate disclosure regime. (Assuming the evidence shows that market forces do not lead to adequate voluntary disclosure.)