Undoubtedly, most of the discussion on corporate governance originates from the US (Sheridan and Kendall, 1992). Central to the corporate governance discussion in this country is the independence of corporate boards of listed corporations. Due to the absence of stringent requirements in federal securities laws and state corporation laws, and guided by the assumption that managerial behavior needs to be constrained by internal and external monitoring devices, boardroom reformers are continuously emphasizing the need to impose self-regulatory schemes on boards of directors of listed corporations.
The need of these boardroom reform initiatives has often been supported by anecdotal evidence from the business press. Respected corporations like General Motors, Kodak and Westinghouse - for example - have been targeted by the media to exemplify the need to improve the independence of corporate boards of listed corporations. These and other large corporations experienced widely publicized turbulence in their boardrooms that often has resulted in changes in the composition and the structure of boards of directors. In addition to pressures from the media, institutional investors such as CalPERS and TIAA-CREF and second-tier regulatory agencies such as the NYSE and NASDAQ are increasingly flexing their muscles to alter the governance structure of corporate boards through special investment programs and additional listing requirements.
The latest developments suggest that legal scholars, representatives from the accounting profession and independent commentators are increasingly encouraging corporations to use board structures that clearly separate the responsibilities of executive directors from those of non-executive directors. In general, these initiatives aim at the separation of the roles of the CEO and the chair of the board, the introduction of non-executive lead directors to boards when these roles are put in the hands of one individual, the appointment of an increasing number of non-executive directors to corporate boards who have not been affiliated with the corporation and the formation of independent oversight board committees composed predominantly of non-executive directors. These reform initiatives suggest that boardroom reformers increasingly advocate design strategies that facilitate the separation of decision management from decision control in one-tier boards in the US. These and other initiatives are further explored in this chapter.
The governance structure of corporations is regulated by both federal and state securities laws and state corporation laws. Federal and state securities laws mainly regulate the disclosure of detailed information in annual reports, proxy statements and other reporting titles on matters related to the nomination of directors, the formation and composition of board committees, the organization of board leadership structures and the remuneration of directors in publicly held corporations. The Securities Act of 1933 and the Securities Exchange Act of 1934 are discussed in paragraph 6.2 to exemplify the federal standards on board disclosure. In addition, this paragraph also briefly refers to the role of state securities laws in the disclosure of corporate governance structure of publicly held corporations. To describe the formal governance structure of corporations, paragraph 6.3 relies on the Model Business Corporation Act (MBCA) and the General Corporation Law of the State of Delaware. Most states in the US have adopted sections from the MBCA in their corporation laws while a majority of large listed corporations is incorporated under the rules of the State of Delaware.
Paragraph 6.4. explores developments in board attributes and the formal independence of one-tier boards in listed corporations. The analysis is based on data collected between 1981 and 1997. In general, information on board size and composition, board leadership structures and the formation of standing oversight board committees is based on studies from executive search firms (Spencer Stuart, Heidrick and Struggles, Korn/Ferry International), The Business Roundtable, the NACD, The Conference Board and others. This chapter concludes with a summary in paragraph 6.5.
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