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Board Service Providers - Are they the Next Generation of Corporate Governance?

In July 2013, the Coase-Sandor Institute for Law and Economics at the University of Chicago Law School released its latest article “Boards-R-Us: Reconceptualizing Corporate Boards.” This article criticizes state corporate laws for mandating that only “natural persons” may provide board services, arguing  that Board Service Providers (BSPs) could instead be a viable and efficient option for corporate boards. Should the requirement for “natural persons” to be directors be relaxed, the authors envision large professional director service firms emerging, which they believe would create a market for corporate governance services.

The BSP concept has emerged as experts and academics have focused on the increased legislative and regulatory requirements concentrating on corporate board effectiveness. The authors of this article argue that if the “natural persons” obligation is out of the corporate board equation, there are “significant gains that BSPs can provide including board accountability and quality services at competitive prices.” Additionally, the article reasons that BSPs would be a means to measuring the quality of corporate governance because publicly traded BSPs that provide services to many firms would have to measure service quality independently of the operational outcomes of the client.

While the article presents BSPs as an optimal option for corporations to consider, it does not suggest that this is a complete solution. Instead it argues that state corporate law requirements should be modified in order to provide various options to incentivize the board to do its job effectively.

The full article is available for download here.