Are Boards Designed to Fail? The Implausibility of Effective Board Monitoring

TLDR

The review questions whether directors can effectively monitor management, seeks to identify research gaps and propose future studies, and aims to broaden understanding of board behavior beyond agency and resource‑dependency theories. The authors develop a model treating boards as information‑processing groups, showing how differing demands at director, board, and firm levels can impede monitoring, and draw on multiple theories to identify these barriers. Reviewing the identified barriers provides a comprehensive inventory of corporate governance research and enhances explanations of board behavior beyond conventional agency and resource‑dependency frameworks.

Abstract

In this review, we challenge the idea that directors are well positioned to be effective monitors of management. Moving beyond the logic of incentives and ability, we conceptualize a model based on the premise of boards as groups of individuals obtaining, processing and sharing information and explain how variation in information-processing demands at the director, board and firm level may challenge effective monitoring. We draw on multiple theoretical perspectives to identify these barriers to effective board monitoring. Our goal in reviewing these barriers is to help us take stock of existing research in corporate governance and to better explain board behavior beyond traditional agency and resource dependency accounts. We also aim to uncover gaps in the conceptual and empirical research and suggest areas of fruitful future research.