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55 Vand. L. Rev. 1 (2002)
Why a Board - Group Decisionmaking in Corporate Governance

handle is hein.journals/vanlr55 and id is 15 raw text is: VANDERBILT LAW REVIEW VOLUME 55 JANUARY 2002 NUMBER 1 Why a Board? Group Decisionmaking in Corporate Governance Stephen M. Bainbridge* I. INTRODUCTION .................................................................. 2 II. THE BOARD'S STATUTORY ROLE .......................................... 4 III. WHY A BOARD? GROUP VERSUS INDIVIDUAL DECISION- M AK IN G ........................................................................... 12 A. Groups Versus Individuals: Experimental E vidence ................................................................ 12 B. Why Are Groups Superior? .................................... 19 1. Bounded Rationality .................................. 19 2. Individual Versus Group Decisionmaking B iases ............................. . . ................... 27 a. H erding ........................................... 27 b. Overconfidence ................................ 29 c. Group Biases .................................. 31 3. A gency Costs .............................................. 32 a. Vertical Monitoring .......................... 33 b. Horizontal Monitoring .................... 35 c. Caveats .......................................... 38 C . Correlations ........................................................ 41 IV. REGULATORY IMPLICATIONS ............................................ 42 * Professor, UCLA School of Law. Subject to the usual disclaimers, I thank Mitu Gulati, Bill Klein, Don Langevoort, Eric Rasmussen, and Cass Sunstein for helpful comments, as well as the participants in faculty workshops at the Harvard Law School and University of Illinois Col- lege of Law. This Article is derived from chapter 5 of my forthcoming text, STEPHEN M. BAIN- BRIDGE, CORPORATION LAW AND ECONOMICS (Foundation Press, forthcoming 2002).