Friday, July 19, 2013
George Dent (Case Western) has posted on SSRN Probing Corporate Governance Without Shareholders: A Cautionary Lesson From Non-Profit Organizations. Here is the abstract:
over 80 years, debate over corporate governance has centered on the
balance of authority between the board and shareholders. One side in
this debate advocates “shareholder primacy”, so that directors would
actually be chosen by and accountable to the stockholders. The other
side touts “director primacy” and keeping shareholders weak. This side
claims that directors who are free of shareholder control would strive
to maximize long-term firm value, and have the wisdom and independence
to pursue this goal intelligently and conscientiously.
The boards of non-profit organizations (“NPOs”) are self-perpetuating: They are not answerable to shareholders because they have no shareholders. If director primacists are right, NPO boards should function as director primacists wish corporate boards would. The reality is quite the contrary. Commentators agree that NPO boards are generally worse than corporate boards. This brief article describes the functioning of NPO boards, discusses why they are so dysfunctional, and what lessons their example holds for corporate governance.