A Team Production Approach to Corporate Law and Board Composition

Bernard S. Sharfman, Cohen Milstein Sellers & Toll PLLC
Steven J. Toll, Cohen Milstein Sellers & Toll PLLC

Abstract

In today’s world of corporate governance, the board of directors of a publicly held firm (“public company”) will almost certainly be made up of a majority of independent directors. Armed with such independence, it is hoped that corporate boards can better monitor for managerial opportunism and enhance firm performance relative to management dominated boards.

The criterion for selecting outside board members is to choose members who enhance the efficiency of board decision-making. For that to occur, we must have an understanding of how the corporate board of a public corporation is to operate in an efficient manner. As proposed by Professors Margaret Blair & Lynn Stout, in order for the corporate board of a public corporation to operate efficiently, it must operate as a mediating hierarchy, consistent with a team production approach to corporate law and governance. Given this approach, a board composed of members that can best understand how the corporation operates as a mediating hierarchy should be the board that operates the most efficiently.

For guidance on how we should select board members using a team production approach, we rely on the work of Kaufman & Englander.