Corporate Board Structure, Managerial Self-Dealing, and Common Agency

This paper compares the effects on corporate performance and managerial self-dealing in a situation in which a (privately informed) CEO reports to a single Board that is responsible for both monitoring management and establishing performance targets to an alternative in which the CEO reports to two different Boards, each of them responsible for a different task. The equilibrium set of the common agency game induced by the dual board structure is fully characterized. Compared to a single board, a dual board demands less aggressive performance targets from the CEO, but exerts more monitoring. A consequence of the first feature is that the CEO always exerts less effort toward production with a dual board. The effect of a dual board on CEO self-dealing is ambiguous: there are equilibria in which, in spite of the higher monitoring, the amount self-dealt is higher in a dual system. The model indicates that the strategic interdependence generated by the assignment of different tasks to different boards may yield - in spite of the increase in monitoring - results that are far from the desired ones.