Chapter 7: Knowledge and Accountability: Outside Directors’ Contribution in the Corporate Value Chain

Considerable evidence has shown that boards of directors often act as management consultants rather than agents monitoring management on behalf of external shareholders (Lorsch & McIver, 1989; Mace, 1971). The seminal work of Mace more than 3 decades ago showed that it was a myth that board set objectives, hired, fired, and compensated the chief executive officer (CEO), and asked discerning questions. In reality, boards most often were only ornaments on the “corporate Christmas tree” or at best acted as consultants for the management. The gap between myth and reality was largely due to various institutional forces emerging from managerial and class hegemony.