Informational autonomy in the boardroom

This Article illuminates a fundamentally misunderstood mismatch between corporate theory and the actual practice of boards of directors. Increasing attention has been paid to whether one person should serve as both CEO and board chairperson and the connection this has to corporate performance. The growing significance of the debate over board leadership structure is evident in recent regulatory trends: passage of legislation like the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 focuses on increasing disclosure requirements for companies that maintain CEO/Chairperson duality. The assumption underlying the legislation is that an independent chairperson will facilitate board independence, which will in turn lead to better detection of managerial corruption or incompetence. This Article proposes a new analytical paradigm that suggests such standard, structurally oriented approaches to board reform without an effective process are not enough to improve board governance. The available evidence shows that separating the CEO and chairperson does little to eliminate or mitigate corporate failure. Instead, this Article suggests a reorientation away from board structure toward the processes by which boards actually make decisions and oversee managers. Effective board decision making and oversight requires that board members have informational autonomy. Board members currently lack the ability to get their own information about their companies' operations, placing them at the mercy of the CEO and the management team she controls. In order to act as a consistently effective check on CEO authority, board members need access to information-gathering channels that are not controlled by the CEO. The conventional approach, focused as it is on board structure, provides limited insight into the information problem. This Article attacks the problem head-on. In doing so, it departs substantially from previous regulatory approaches, and proposes several methods to help boards achieve informational autonomy through solutions drawn from the Process-Oriented Approach.