Shareholder Activism, the Short-Termist Red-Herring, and the Need for Corporate Governance Reform

The current model of corporate governance is a product of academic thinking of the 1970s, which produced the “monitoring board” staffed by “independent directors” whose main source of monitoring capacity is the stock price performance of the company over time and compared to peers. These directors are decidedly part-time; relying on information supplied by management and stock market prices, they are “thinly informed.” In its time, this model of board governance was an advance and suited the needs and capacities of dispersed shareholders.