The board of directors forms an integral part of a firm’s governance mechanisms. Yet, how boards perform their dual role of supervisor and advisor of corporate management is difficult to observe from outside of the company. To open this black box, we survey 130 non-executive directors in various emerging markets to obtain detailed information about the inner workings of boards. We document substantial variation in the structure and conduct of boards as well as in directors’ perceptions about the local legal environment. Further analysis indicates that directors who feel adequately empowered by local legislation are less likely to vote against board proposals. They also form boards that play a stronger role in the company’s strategic decision making. This suggests that a supportive legal environment allows directors to focus more on their advisory as opposed to their monitoring role.
Posted by Ralph de Haas, EBRD; Daniel Ferreira, London School of Economics; and Tom Kirchmaier, University of Manchester, on Thursday, October 5, 2017
Editor's Note: Ralph de Haas is Deputy Director of Research at the European Bank for Reconstruction and Development (EBRD); Daniel Ferreira is Professor of Finance at London School of Economics; and Tom Kirchmaier is a Research Economist at London School of Economics. This post is based on a recent paper by Mr. de Haas, Professor Ferreira, and Professor Kirchmaier.