Corporate board

From Mises Wiki, the global repository of classical-liberal thought
Jump to: navigation, search

A corporate board (or a board of directors) is part of the governing triad of a corporation, which consists of (1) stockholders, (2) the board, and (3) management. The board members are elected by the stockholders, usually by a semi-proportional cumulative voting system. The board typically has several committees, including a compensation committee to determine executive pay and benefits and an audit committee to hire an auditing firm. Some of these committees are composed of "independent" board members (i.e. those whose affiliation with management is relatively minor) because of management's conflicts of interest in the matters dealt with by those committees.[citation needed]

Fiduciary duty

The board members have a fiduciary duty to look after the interests of the stockholders and to protect them from managerial malfeasance and incompetence. A minority shareholder faction can sue for relief on grounds of oppression if the board favors the interests of the majority shareholders at the expense of the other shareholders. For example, if the majority shareholder of corporation X orders that firm to buy overpriced goods from corporation Y (all the shares of which he owns) using funds contributed by minority shareholders, that would be an example of oppression.

This is very different from the situation that voters encounter under a democratic government. There, representatives are free to have the government invest in pork barrel projects that will serve the interests of politically powerful constituents at the expense of the politically weak. There is no accountability for such deliberate waste of funds.[citation needed]

Political interference

Corporate boards have often been subject to politically-motivated regulations. For example, Ludwig von Mises notes:[1]

The most frequent procedure was to yield to the government’s wishes concerning the composition of the board of directors. Even in Great Britain a board of directors which did not include several peers was considered not quite respectable. In continental Europe and especially in Eastern and Southern Europe the boards were full of former cabinet ministers and generals, of politicians and of cousins, brothers-in-law, schoolmates, and other friends of such dignitaries. With these directors no commercial ability or business experience was required. The presence of such ignoramuses on the board of directors was by and large innocuous. All they did was to collect their fees and share in the profits.

A modern version of this trend is allowing "stakeholder representatives" to speak for the interests of non-shareholders.[2]

References

Links