Center for Law and Economic Studies
Ira M. Millstein Center for Global Markets and Corporate Ownership
This paper sketches out the case for a new board model, Board 3.0, as an option for public company boards. The goal is to develop a model of thickly informed, well-resourced, and highly motivated directors who could credibly monitor managerial strategy and operational skill in cases where this would be particularly valuable. Unlike the present board model of thinly informed, under-resourced, and boundedly motivated directors, Board 3.0 directors could credibly defend management against shareholder activist incursions, where appropriate, with institutional investor owners. Similarly, such directors could find a place in extremely complex enterprise, such as finance, where the costs of business failure are profound. One inspiration for Board 3.0 is found in private equity, in which the high-powered incentives of the PE sponsor have produced a different mode of board and director engagement that seems associated with high value creation. Porting over some of its features to the public company board offers a fresh starting point. The present public board model is an organizational experiment begun approximately 40 years ago, which replaced a prior organizational form that had fallen short. There is no reason to think the present public company board model is the “end of history” for corporate governance. The world of private markets, venture capital and private equity, have made effective use of alternative board models. Our goal is to bring some of that governance experimentalism to public companies. Expanding public company board models with Board 3.0 may avoid the need for corner solutions, such as dual class common structures or take-private transactions. A new public company board option will strengthen the capacity of public markets to facilitate capital formation and will thus aid financial inclusion by sustaining the number of public companies.
Ronald J. Gilson & Jeffrey N. Gordon,
Board 3.0 – An Introduction,
Business Lawyer, Vol. 74, p. 351, 2019; Stanford Law & Economics Olin Working Paper No. 531, Columbia Law School Center for Law & Economic Studies Working Paper No. 602
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2294