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Communication and Decision-Making in Corporate Boards

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  • Nadya Malenko

    (Stanford University)

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.

Suggested Citation

  • Nadya Malenko, 2011. "Communication and Decision-Making in Corporate Boards," 2011 Meeting Papers 449, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:449
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    File URL: https://economicdynamics.org/meetpapers/2011/paper_449.pdf
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    References listed on IDEAS

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    1. Gilat Levy, 2007. "Decision Making in Committees: Transparency, Reputation, and Voting Rules," American Economic Review, American Economic Association, vol. 97(1), pages 150-168, March.
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    13. Thomas J. Chemmanur & Viktar Fedaseyeu, 2012. "A Theory of Corporate Boards and Forced CEO Turnover," Working Papers 444, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    14. Ottaviani, Marco & Sorensen, Peter, 2001. "Information aggregation in debate: who should speak first?," Journal of Public Economics, Elsevier, vol. 81(3), pages 393-421, September.
    15. Praveen Kumar, 2008. "Who Monitors the Monitor? The Effect of Board Independence on Executive Compensation and Firm Value," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1371-1401, May.
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    Cited by:

    1. Miriam Schwartz-Ziv & Michael Weisbach, 2011. "What do Boards Really Do? Evidence from Minutes of Board Meetings," NBER Working Papers 17509, National Bureau of Economic Research, Inc.

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