A Theory of Friendly Boards

Award Winner: 
Winner of the 2006 Egon Zehnder International Prize (Best paper on company boards and their role in corporate governance)

A Theory of Friendly Boards

Renée Adams, Daniel Ferreira

Series number :

Serial Number: 

Date posted :

October 01 2005

Last revised :

SSRN Share


This paper analyzes the consequences of the board's dual role as an advisor as well as a monitor of management. As a result of this dual role, the CEO faces a trade-off in disclosing information to the board. On the one hand, if he reveals his information, he gets better advice. On the other hand, a more informed board will monitor him more intensively.

Since an independent board is a tougher monitor, the CEO may be reluctant to share information with it. Thus, our model shows that management-friendly boards can be optimal. Using the insights from the model, we analyze the differences between a sole board system, such as in the United States, and the dual board system, as in various countries in Europe. We highlight several policy implications of our analysis.

Published in

Published in: 
Publication Title: 
The Journal of Finance
62 (1), 217-250