Citation Context

... boardrooms are dysfunctional’, because directors rarely criticize the policies of top managers or hold candid discussions about corporate performance. Believing that these problems increase with the number of directors, Lipton and Lorsch recommend limiting the membership of boards to ten people, with a preferred size of eight or nine. The proposal amounts to a conjecture that even if boards’ capacities for monitoring increase with board size, the benefits are outweighed by such costs as slower decision-making, less-candid discussions of managerial performance, and biases against risk-taking. Jensen (1993) takes up this theme, pointing out the ‘great emphasis on politeness and courtesy at the expense of truth and frankness in boardrooms’ and stating that ‘when boards get beyond seven or eight people they are less likely to function effectively and are easier for the CEO to control’. Some evidence shows that reducing board size has become a priority for institutional investors, dissident directors, and corporate raiders seeking to improve troubled companies. Kini et al. (1995) present evidence that board size shrinks after successful tender offers for under-performing firms. At American Express,...