The Competitive Advantages of Compound Boards

Abstract

The paper identifies the manifold conflicts of interest inherent in firms governed by a single board and how a unitary board exacerbates information overload and bounded rationality while paradoxically not providing sufficient information, independent of management, to direct, monitor, control, and change management. Firms governed by a multiple boards, described as a compound board, introduce a division of power to mediate conflicts, allow access to superior feedback information from stakeholders, and enhance the cybernetic integrity of how a firm is governed. Compound boards are identified as a necessary condition for reducing the cost of finance and developing (i) self-regulation and self-governance, (ii) sustainable employee and/or other stakeholder participation in governance, and (iii) superior performance. This makes unitary boards inconsistent with knowledge intensive or network firms seeking to bond human capital through employee ownership or for firms with a large degree of employee ownership. Performance, Self-governance, Self-regulation, Social tensegrity, Unitary boards