The case for professional boards: an assessment of Pozen's corporate governance model

Abstract

Purpose

Robert C. Pozen, Chairman Emeritus of MFS Investment Management and a long-time scholar of corporate governance, has proposed a model of professional board directorship that responds to the three main factors he believes underpin ineffective board decision making: the large size of boards; the lack of specific industry expertise; and inadequate director time commitment. The paper aims to discuss these issues.

Design/methodology/approach

The authors critically evaluate the efficacy of Pozen's proposed corporate governance model, addressing the three main factors underpinning ineffective board decision making.

Findings

A professional board consisting of retired executives with industry-specific expertise is vulnerable to a groupthink mentality, as well as to the availability of such individuals for board directorship seats. Moreover, while industry-specific expertise is a desired attribute of an independent board director, there are other attributes that firms are looking for, including international, regulatory/governmental, risk, technology, and marketing expertise. Lastly, Pozen's recommendations to reduce board size to seven members, as well as increasing the number of hours that independent directors spend on board-related activities (and commensurate compensation received), should be seriously considered as potential value-adding, corporate governance improvements.

Originality/value

The authors critically evaluate a corporate governance model that, based on director-related issues arising from the recent global financial crisis, has resurrected the concept of a “professional board” of directors. The authors utilize state-of-the-art academic literature from the fields of corporate governance and organizational behavior to evaluate the merits and de-merits of the proposed corporate governance model, and present their findings (and recommendations) for improvements in corporate governance practices.

Citation

A. Hemphill, T. and J. Laurence, G. (2014), "The case for professional boards: an assessment of Pozen's corporate governance model", International Journal of Law and Management, Vol. 56 No. 3, pp. 197-214. https://doi.org/10.1108/IJLMA-07-2012-0023