Multibillion-dollar governance debacles have understandably created new demands for radical reform. A “zero-tolerance” environment is evolving for both directors as individuals and boards as fiduciary institutions. The days when “independent” directors could receive hundreds of thousands of dollars in “fees” for marginal investments of time and effort are over.
Yet although the current sense of urgency and accountability may be new, the underlying problems of corporate governance are not, as Yale economist Paul W. MacAvoy and attorney and governance guru Ira M. Millstein point out in their quirky but compelling collaboration, which explains why boards consistently, persistently, and predictably fail in their fiduciary duties.
Despite legislation as onerous as Sarbanes-Oxley, and despite ongoing threats of public and private litigation, Professor MacAvoy and Mr. Millstein maintain that the governance conundrum will get worse unless further reforms are undertaken. In a pithy, provocative 160 pages, they not only synthesize and summarize the best academic research on the economic importance of governance; they persuasively argue that boards need to be institutionally reconstituted and redesigned.
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