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Communication and Decision-Making in Corporate Boards

  • Nadya Malenko

    (Stanford University)

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    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.

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    File URL: https://economicdynamics.org/meetpapers/2011/paper_449.pdf
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    Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 449.

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    Date of creation: 2011
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    Handle: RePEc:red:sed011:449
    Contact details of provider: Postal:
    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/
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