In the post-Enron, post-WorldCom handwringing over corporate governance, some public companies call it a "reform" whenever they add a board director who doesn't work for them.
Not so fast, University of Florida researchers say.
"Simply putting someone on a board who's an outsider who has some status because of political or business connections or whatever, doesn't ensure stockholder representation," Henry Tosi, a professor of management at UF's Warrington College of Business, concludes in a new report. "The appearances are such that it does, but our research shows that's not the case."
In fact, the UF study found that some of the most egregious cases of corporate malfeasance occurred in companies that boasted a majority of outside directors. Eighty percent of Enron's board were outside directors, for instance, as were 60 percent of Tyco's board.
Too often, UF found, the outside directors at those scandalized companies and others were too cozy with the CEO - and too dependent on the CEO to stay in their post. Still today, many outside directors have little stock in the companies they represent and that lack of vested interest might translate to lack of diligent oversight.
Instead of just adding outside directors, Tosi and his two colleagues on the study, Wei Shen and Richard Gentry, suggest public companies give stockholders direct representation on the board. That could mean requiring every board to include a large shareholder who has no direct involvement in the company's managers or executives. Perhaps a board spot reserved for institutional investors.
Moving their suggestions from academic debate to reality is another issue.
