My friend and not infrequent sparring partner Jeff Lipshaw wrote an informative post on blockchain and AI (see my preceding post). In the course of doing so, he took a shot in passing at my work with Todd Henderson on outsourcing the board of directors:
In doing so, Jeff takes a pot shot at my work with Todd Henderson on boards of directors:
My thesis is that legal thinking is inherently reductive and that the reduction manages to exclude or minimize precisely those leadership aspects of governance beyond mere monitoring.
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The culmination of the reduction is a recent proposal by two esteemed corporate law professors, Stephen Bainbridge and Todd Henderson, that the current system of shareholder elected directors be replaced by outsourced “board service providers.” The proposal turns on the conception that the board’s sole obligation is to monitor agency costs within the corporation to maximize shareholder wealth. Thus, in its attempt to weed out self-serving opportunism by managers, the legal proposal also dispenses with the leadership contributions that the business perspective values.
In our book, Outsourcing the Board, Todd and I explain that monitoring has become the board's principal function (42-49). We acknowledge that the extent to which boards in the real world do function as assertive monitors is contested (48). We also discuss at some length the problems with the monitoring model of the board's function, especially in a section called--of all things--Overemphasizing Monitoring Has Costs (78-79).
We also discuss at some length the board of directors' other functions, such as services to top management--such as networking and advising--and making some managerial decisions (30-42). We explain that although monitoring is job one, real world boards continue to play the other roles they have traditionally provided (52).
While we propose that the board service provider (BSP) to which the board function should be outsourced will be more effective than current boards at monitoring management, we emphasize that:
BSPs are highly adaptable. They are well suited to perform the monitoring function as required by current law and best practices, but they are equally well suited to performing service and managerial functions. Indeed, as we shall see, because BSPs are less subject to time and expertise constraints than individual directors, they are capable of fully carrying out the monitoring function while also simultaneously providing more effective advisory, networking, and managerial services. (51)
We also explain at length that current board call too often fail to lead (74-76). In our view, a BSP provides a management team that can be more effective--especially in crises--than current boards.
So I reject the implication that our proposal is aimed solely at "weed[ing] out self-serving opportunism by managers." Likewise, our proposal does not dispense with the board's other functions.