هیئت مدیره واقعا چه کاری انجام می دهند؟ مدارک و شواهد از دقایقی از جلسات هیئت مدیره

We analyze a unique database from a sample of real-world boardrooms — minutes of board meetings and board-committee meetings of eleven business companies for which the Israeli government holds a substantial equity interest. We use these data to evaluate the underlying assumptions and predictions of models of boards of directors. These models generally fall into two categories: “managerial models” that assume boards play a direct role in managing the firm, and “supervisory models” that assume that boards monitor top management but do not make business decisions themselves. Consistent with the supervisory models, our minutes-based data suggest that boards spend most of their time monitoring management: approximately two-thirds of the issues boards discussed were of a supervisory nature, they were presented with only a single option in 99% of the issues discussed, and they disagreed with the CEO only 2.5% of the time. Nevertheless, at times boards do play a managerial role: Boards requested to receive further information or an update for 8% of the issues discussed, and they took an initiative with respect to 8.1% of them. In 63% of the meetings, boards took at least one of these actions or did not vote in line with the CEO. Taken together our results suggest that boards can be characterized as active monitors.

Given their central role in corporate governance, boards of directors have become a popular topic of research. A recent search of Social Science Research Network for “board of directors” yielded more than two thousand research papers on the topic.1 A major difficulty in designing research about boards of directors is that the day-to-day workings of a boardroom are private, so that to understand the roles of boards, researchers must draw (possibly incorrect) inferences about their decision-making process from publicly observable data. The most common empirical research strategy on boards is to gather data on their structure and to draw inferences about what boards do from the way in which this structure affects observable variables about the firm. Theoretical research generally starts from a premise about what kinds of decisions boards make (managerial or supervisory), as well as the process by which these decisions are made. The uncertainty about the extent to which the empirical inferences are correct, and to which the underlying assumptions of the theoretical models characterize real world boards limits the applicability of this research. In this paper, we supplement existing research, which is primarily based on publicly available data, with private data on the detailed minutes of board meetings for 11 Israeli business companies in which the government has a substantial equity interest (government business companies, or GBCs). Each set of minutes covers a year of meetings within the 2007–2009 period. These minutes show the details of board and board-committee meetings, including all the statements made by every participant in each meeting.2 As such, they are significantly more detailed than minutes of American companies, which are usually thoroughly scrutinized by legal experts and describe board meetings only roughly. We transform the minutes into a quantitative database that characterizes the board meetings, allowing us to assess the way in which the boards work and interact with management. For each issue discussed, we describe what was discussed, whether an update was delivered or a decision was made by the board, whether there were any dissenting votes, whether the decision followed the recommendation of the chief executive officer (CEO), whether the board took an initiative to modify, define more specifically, or propose an alternative action to be taken, whether the board requested to receive further information or an update, and whether the board was presented with at least two proposals to consider. This database consists of the minutes from 155 board meetings and 247 board-committee meetings, in which 2,459 decisions were made or updates were given (1,422 decisions and 1,037 updates).3 This paper is the first to analyze board minutes in a systematic fashion. Doing so has a number of advantages over traditional empirical work that employs publicly available or interview-based data. Outcome-based empirical work typically relates board composition to observables such as CEO turnover, a hostile takeover, or adoption of a poison pill.4 These events, albeit extremely important, are unusual and do not reflect the day-to-day functions of boards. In addition, a number of studies rely on questionnaires or interviews with CEOs and directors, with the goal of capturing the essence of the way in which they work together.5 Yet, these studies rely on directors' memories and willingness to disclose their own actions, and they can, therefore, reflect inflated perceptions of directors regarding their own abilities and their contribution to the firm. The advantage of the minutes we analyze is that they record everything that happened at the meetings and provide a clear picture of what boards actually do. A fundamental problem in the literature on boards of directors is that it has not agreed on the process by which boards govern the firm. Because of the complexity of the decision-making process inside firms, formal models of boards have generally focused their analysis on one particular role boards play. Some, including Song and Thakor (2006), Adams and Ferreira (2007), and Harris and Raviv (2008), adopt a “managerial” approach to boards of directors that presumes boards make managerial decisions such as which projects to undertake, and which employees to hire. These models emphasize the board's role with respect to what Fama and Jensen (1983) define as the “Decision Management” component of the decision process (i.e., the ratification and monitoring of decisions). Alternatively, the “supervisory” approach, adopted by models such as Hermalin and Weisbach (1998), Almazan and Suarez (2003), and Raheja (2005), starts from the assumption that the main function of boards is to monitor and assess the CEO, rather than to intervene in particular issues. This approach models the board's role in what Fama and Jensen (1983) refer to as the “Decision Control” part of the decision process (i.e., the initiation and implementation steps). The minutes data allow us to do the somewhat unorthodox testing of the underlying assumptions made in each of the two approaches, in addition to testing their predictions. Consistent with the supervisory approach, for the sample of GBCs we consider, boards discuss issues we classified as supervisory approximately two-thirds of the time. In addition, most of the time boards go along with the CEO's wishes: in only 2.5% of the cases did boards partially or completely vote against the CEO. Finally, we find that only 1% of the time was the board presented with more than one alternative to choose from. However, we also find evidence suggesting that some of the time boards do play a managerial role. On average, in 8.1% of the issues discussed the board took an initiative on its own, implying that it actively participated in shaping the decision in these cases. In addition, in 8% of the issues the board requested to receive further information or an update. Because a number of issues are discussed at every meeting, boards played an active role on at least one issue in the majority of meetings. In 63% of the meetings, boards took at least one of the following actions: They did not vote in line with the CEO, they requested to receive further information or an update, or they took an initiative of some kind. Taken together, these findings suggest that boards can be characterized as active monitors. Most commonly, they supervise and monitor management. However, on occasion they actively make managerial decisions themselves. The minutes data allow us to draw some inferences that are impossible to make using publicly available data. For example, our sample suggests that prior work understates the fraction of CEO departures that are forced. While our sample is too small to draw reliable estimates of the understatement, in at least two cases in our sample the CEO was clearly coerced to leave by the board, yet there would be no way to know the departure was not voluntary using only publicly available data. The existence of these cases suggests that estimates of the fraction of forced CEO turnovers that are based on publicly available data underestimate, perhaps substantially, the fraction of turnovers that are initiated by the board. Overall, the results suggest that boards of directors play both supervisory and managerial roles. While boards spend more time on supervisory issues, managerial concerns also take up a non-negligible portion of their time. Consequently, supervisory and managerial models of boards of directors each capture some of what boards actually do, albeit incompletely. A potential concern with this analysis is the extent to which the boards of our sample of Israeli government-controlled companies reflect other companies. While it is impossible to know exactly how different our firms’ governance is from that of privately held companies in both Israel and the rest of the world, several relevant factors should be considered. Because the GBCs are government-controlled, directors are appointed and not elected by shareholders and, therefore, do not have direct pecuniary incentives to maximize their firms' values. However, the GBC boards we consider are of similar size and composition as boards of publicly traded companies around the world, especially those in Israel and Europe. The directors of GBCs have the same fiduciary responsibilities as directors of private and public Israeli firms, which are very similar to those of American directors. In addition, the GBC directors are explicitly required to maximize their firm's profits, and our reading of the minutes suggests that they take this responsibility seriously. Furthermore, as we specify throughout the paper, the board dynamics we find are similar to those reported in interview-based studies, which are most often based on publicly traded U.S. companies. For these reasons, the relationship between a CEO of a GBC and his board, and among the directors of GBCs, is likely to be similar to the corresponding relationships in other boardrooms. To understand the role of boards of directors, we believe it is necessary to observe to the extent possible how they actually function. To do so requires the kind of data for which we have access for our sample but is impossible to obtain for most firms. The fact that formal models of boards of directors are based on such wildly different underlying assumptions suggests that this approach has value and can lead to improved modeling and interpretation of empirical results of other studies. Our hope is that by opening up the black box of the board for these companies, we can shed light on how boards function in other types of companies in which the basic structure of a board supervising a CEO is present.

Boards of directors play a central role in corporate governance. Yet, the way in which they make decisions is a mystery. Their discussions are conducted behind closed doors, and records of who said what, or even the general tenor of the meeting, are generally not publicly available. Empirical studies of governance generally draw inferences about the roles of the board from publicly available data, and knowing whether these inferences are correct is often difficult. Because of the uncertainty about how boards function in practice, scholars have used wildly different assumptions when constructing formal models of boards of directors. Our knowledge of boards of directors is substantially limited by the private way in which they usually operate. In this paper, we construct a database consisting of the actual board minutes of a sample of 11 Israeli, government-controlled companies for one year per company. These minutes contain details of who said what at board meetings and board-committee meetings, the actions taken by the directors, and whether dissent among directors and disagreement between the directors and the CEO occurred. Our analysis characterizes the interaction among directors and between them and the CEO, and it illustrates the way in which directors make decisions. Our goal is to evaluate the extent to which models of boards of directors correspond to real-world practice. The results suggest that most of the time boards play a supervisory role. In our sample, boards usually discussed issues we classify as supervisory, were more likely to receive updates than make decisions, were not presented with alternatives, and almost always voted in line with the CEO. However, we also find evidence suggesting that some of the time they play a managerial role as well. In 63% of the meetings, boards took some kind of action; on firm level, they actively requested further information on 8% of the issues discussed; and they took initiatives on their own in 8.1% of the issues. Taken together, our findings suggest that boards can be characterized as active monitors. Boards are active, but their main focus tends to be on supervising management rather than dictating the specifics of how the company should be run. This picture of boards, taken from the minutes of their meetings, complements much previous research. Theoretical work has helped to explain how self-interested directors can play an important role in their firms, while empirical work has documented much about the way that they do so. Our findings suggest that incorporating both supervisory and managerial roles simultaneously into future discussions of board behavior is a potentially fruitful research direction. Theoretically, models in which boards can both supervise managers and sometimes take over managerial tasks themselves are likely to be more realistic than those currently in the literature. And empirically, documenting the relative importance of managerial and supervisory roles, as well as the circumstances under which the board fills each one, would be extremely valuable. We emphasize that there are important limitations of this study. The sample consists of only 11 companies, from one small country, for only one year per company. Equally important, most of these companies are government-controlled, not privately held. Consequently, directors are appointed instead of elected, and their pecuniary incentives are typically smaller than in privately held companies. It is possible that these factors lead the interactions we observe in our sample of companies to be different from those in companies that are more representative of the population of worldwide corporations. In particular, we would expect that the existence of monetary incentives as directors receive in most privately held companies are likely to lead boards to be more active than we observe in our sample. The extent to which the sample of Israeli, government-controlled companies’ boards is reflective of boards of non-Israeli, non-government-controlled companies is unclear. Future research should attempt to perform similar analyses for other samples of companies, to determine the extent to which boardroom dynamics differ across different types of companies, or follow a more or less universal pattern. These potential differences between our sample firms and other firms notwithstanding, we believe this analysis constitutes an important step in understanding boards of directors. A key limitation to prior research on corporate governance is that in most cases it is impossible to observe exactly what goes on in boardrooms. Minutes data provide a window into how boards actually operate, and as such, highlight and quantify characteristics that allow a relatively thorough understanding of the nature of the work of boards of directors