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University of Pennsylvania Journal of Business Law

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This Article focuses on the evolving role of boards of directors. It charts the decline of the two leading, twentieth-century conceptual frameworks shaping corporate boards’ roles: agency cost theory, which produced the limited “monitoring board,” and “separate realms” theory, which ceded board responsibility for matters other than profit maximization to government regulation. Hedge fund activism and wild stock market swings have exposed the limits of the board’s role in agency cost theory. The 2020 pandemic, economic crises, investors’ demands for socially responsible stewardship, and corporations’ own political activism have rendered separate realms thinking untenable.

Although much theorizing in corporate law remains constrained by these two conceptual frameworks, technology, necessity, and law reform are moving boards beyond them, as we demonstrate. For example, by spring 2020, the economic shocks of the COVID-19 pandemic had sent many public company boards into high gear, forcing them to look beyond stock prices to engage their firm’s full capacity for information gathering, knowledge synthesis and communication. Yet, even before the global pandemic placed heightened demands on boards, a two-decade trend toward “information governance” was well underway. It has been catalyzed by new technology, legal requirements, industry best practices, committee charters, fiduciary duties, and investor demands. The trend is observable in the overhaul of frameworks compelling audit committees’ increased participation in financial reporting. It is evident in legal requirements compelling greater board participation in risk management, legal compliance, and ESG oversight. These changes foster boards’ capacities to collaborate in informed strategy formation—a prerequisite to their responding adeptly to activists’ interventions and stock price gyrations.

We name this new model of board governance “information governance” to capture the board’s agency in knowledge synthesis, reporting oversight, and institutional deliberation constitutive of the firm’s identity. Information governance highlights a leadership role for boards in driving communicative action in firms—the active framing, synthesis, and deployment of the firm’s self-knowledge. In this respect, we discern and emphasize an affirmative, value-creating role for boards that has been suppressed by agency theory’s monitoring board conceit. We analyze areas of ongoing legal flux supporting the new, technologically enhanced, information-rich paradigm we identify.



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