Communication and Decision-Making in Corporate Boards

Nadya Malenko
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Nadya Malenko: Stanford University

No 449, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops a model of communication and decision-making in corporate boards. The key element of the paper is that the quality of board communication is endogenous, because it depends on the effort directors put into trying to communicate their information to others. In the model, directors may have biases regarding board decisions and may also be reluctant to disagree with other directors. If the only interaction between directors is at the decision-making stage, when decisions are made but discussion is limited, these frictions impede effective decision-making because directors' decisions are not fully based on their information. However, if in addition directors can communicate their information more effectively at a cost, then both stronger biases and stronger concerns for conformity at the decision-making stage might improve the board's decisions, because directors have a stronger motivation to convince others of their position. The paper provides implications for the design of board policies, including the use of open vs. secret ballot voting, the frequency of executive sessions of directors, board structure, and the role of committees.

Date: 2011
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:449

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