After boards of directors were blamed by many for not nipping the Enron, WorldCom and other corporate scandals in the bud, new rules were set up requiring that at least one member of a board’s audit committee be financially sophisticated. “The idea was that somehow this would make the board better able to monitor and detect potential fraud,” says Wharton finance professor Geoffrey Tate. Yet in a new research paper titled, “The Impact of Boards with Financial Expertise on Corporate Policies,” Tate and two co-authors study the role of company directors who are commercial or investment bankers and conclude that “financial experts on corporate boards do not necessarily improve shareholder value.”
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