Communication and Decision-Making in Corporate Boards

Time constraints, managerial power, and reputational concerns can impede board communication. This paper develops a model where board decisions depend on directors' effort in communicating their information to others. I show that directors communicate more effectively when pressure for conformi...

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Bibliographic Details
Published in:The Review of financial studies 2014-05, Vol.27 (5), p.1486-1532
Main Author: Malenko, Nadya
Format: Article
Language:English
Subjects:
Ballots
Board of directors
Boards of directors
Business structures
Chief executive officers
Communication
Communication aids
Communication models
Conflicts of interest
Conformity
Corporate boards
Decision making
Directors
Preferences
Signals
Studies
Transparency
Votes
Voting
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Summary:Time constraints, managerial power, and reputational concerns can impede board communication. This paper develops a model where board decisions depend on directors' effort in communicating their information to others. I show that directors communicate more effectively when pressure for conformity is stronger—that is, when directors are more reluctant to disagree with each other. Hence, open ballot voting can be optimal, even though it induces directors to disregard their information and conform their votes to others. I also show that communication can be more efficient when directors' preferences are more diverse. The analysis has implications for executive sessions, transparency, and committees.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hht075