Our objectives for corporate governance — what we want boards to do — should be based on the reality of what boards are capable of doing. To demand more from boards than they can provide, or to demand the wrong things from boards, will surely be counterproductive, at best wasting valuable resources that could be more productively applied to other board activity and at worst discouraging board membership by conscientious, able individuals.
On my first or second day of the Corporations class in law school, I remember I was taught that “the business and affairs of the corporation are managed by the board of directors.” I suppose they still teach that in law school. The courts certainly still recite it, and words to that effect are found in many state corporations statutes. But it is a very curious statement. I remember finding it curious as a second-year law student when I was first exposed to it, though I certainly didn't have the experience with corporations then to appreciate how really curious it is.
I did recognize that since we use words like “managers” or “management” in contradistinction to “directors,” there must be more going on in this statement than meets the eye. I remember another student who was perhaps wiser, or bolder, or simply more ingenuous than I, asking about the notion that the directors manage a corporation's business and affairs. The professor gave a fairly standard answer: that “manage” as used here refers to setting overall policy for the company and making decisions on critical issues, as opposed to day-to-day management. I suppose that is one way to make sense out of a nonsensical statement, but I didn't find it very satisfactory and, after a fair amount of experience with boards, I still don't.
My alternative explanation at the time was that this was an example of the law being aspirational instead of descriptive. It was the law's way of saying “this is what we want a board to do,” even if boards don't really behave that way. So, even at the basic level of what is taught on the first day of a Corporations class, the law is confused about its expectations for a board of directors.
That observation returns us to the basic question: What do good boards do well? What do they do badly? Are there ways to improve board performance at the tasks they perform badly, or are there difficulties so inherent in some tasks that improving performance on these tasks would be a waste of effort?