Section 141(a) of the the Delaware General Corporation Law provides that: "The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors . . . ." (The reason we corporate law scholars generally cite to Delaware law is that the vast majority of Fortune 500 companies are incorporated there.) Given this statutorily directed (pun intended) "director primacy," one could be forgiven for expressing some surprise at finding out that directors are often part-timers (though well compensated and with some nice perquisites), with no necessary experience in the particular business they are directing or particular financial expertise. For example, "Bank of America Corp on Friday appointed four outside directors to bolster its board's banking and financial expertise, after U.S. regulators pushed the nation's largest bank to improve governance after a federal bailout." Again, one might be forgiven for having expected Bank of America's board to be bursting at the seams with banking and financial experts.
One common complaint is that there simply aren't enough industry and financial experts to go around, and so boards are filled with individuals who arguably have various forms of exemplary general business expertise. In addition, it is noted that boards are really more overseers than managers, and that filling the board with industry experts would lead to them "meddling" with the day-to-day management of the business. Finally, there is the response that shareholders elect directors and if they wanted more expertise they could vote for it, either at the ballot box or with their feet.
Putting aside for the moment the question of whether we actually have effective shareholder voice in corporate governance, it seems the lack of board oversight is precisely what many see as one of the root causes of the financial crisis. (Though according to the Delaware Court of Chancery, this lack of oversight did not rise to the level of a fiduciary care violation in the case of Citigroup.) Furthermore, this lack of oversight is often blamed on the the board's inability to grasp the intricacies of, for example, the risk the business is taking on via securitization and credit-default swap contracts. Now, it may be that the problem is simply that the relevant information isn't getting to the board. But if you are only "on the job" 12 times a year, how effective of a monitor can you really be in any case?
All this leads to another (perhaps tangentially related) question: Is there any connection between the lack of effective board oversight (assuming you agree there is a problem in that area) and the seeming corporate addiction to the crack pipe of lavish excess. Case in point: Wal-Mart's recent annual meeting:
As is traditional for Wal-Mart, the meeting was a Roman spectacle of sorts, where the company eschewed its skinflint practices to celebrate its financial performance and growing list of international conquests. The Vegas-style festivities included an appearance by basketball legend Michael Jordan and musical performances by American Idol winner Kris Allen and teen phenomenon Miley Cyrus. Actor Ben Stiller hosted the lavish production.
Now, far be it for me to judge, but is this really the time for "Roman spectacles"?
