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Why a Board? Group Decisionmaking in Corporate Governance

STEPHEN M. BAINBRIDGE
University of California, Los Angeles - School of Law


Vanderbilt Law Review, Vol. 55, pp. 1-55, 2002
 
 
Abstract:     
The default statutory model of corporate governance contemplates not a single hierarch but rather a multi-member body that acts collegially. Why? This article reviews evidence that group decisionmaking is often preferable to that of individuals, focusing on evidence that groups are particularly likely to be more effective decisionmakers in settings analogous to those in which boards operate. Most of this evidence comes not from neo-classical economics, but from the behavioral sciences. In particular, cognitive psychology has a long-standing tradition of studying individual versus group decisionmaking. This article contends that behavioral research, taken together with various strands of new institutional economics, sheds considerable light on the role of the board of directors. In addition, the analysis has implications for several sub-regimes within corporate law. Are those sub-regimes well-designed to encourage optimal board behavior? Two such sub-regimes are surveyed here: First, the seemingly formalistic rules governing board decisionmaking processes turn out to make considerable sense in light of the experimental data on group decisionmaking. Second, the adverse consequences of judicial review for effective team functioning turns out to be a partial explanation for the business judgment rule.

 
JEL Classifications: G30, K22
 
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Suggested Citation
Bainbridge, Stephen M., "Why a Board? Group Decisionmaking in Corporate Governance" . Vanderbilt Law Review, Vol. 55, pp. 1-55, 2002 Available at SSRN: http://ssrn.com/abstract=266683 or DOI: 10.2139/ssrn.266683

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Contact Information for STEPHEN M. BAINBRIDGE (Contact Author)


Email address for STEPHEN M. BAINBRIDGE
University of California, Los Angeles - School of Law
405 Hilgard Avenue
Box 951476
Los Angeles , CA 90095-1476
United States
310-206-1599 (Phone)
310-825-6023 (Fax)


 
 


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