Small Business Reading Room

Monday, December 08, 2003

Corporate Law Meets Behavioral Science

Delaware General Corporation Law, Title 8, Subchapter IV, Section 141 (i):
“Unless otherwise restricted by the certificate of incorporation or bylaws, members of the board of directors of any corporation, or any committee designated by the board, may participate in a meeting of such board, or committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at the meeting.”

This feature of Delaware law allows the use of telephones, cell phones, virtual meeting programs, teleconferencing and other means not yet imagined. But why is this important? For one thing it makes it very easy for the small corporation with a board of two or three people to hold board meetings via conference call or even a simple phone call. Another feature of the rule mandates that the participants be able to hear each other.

Hearing the other people in the meeting turns out to be very important for efficiency – people tend to make decisions quicker when not required to type or write their responses *– and for the quality of the decisions made – more information is contained in audible speech than in text messages^. For more on the research and its implications for corporate governance please see the article below.

Professor Stephen M. Bainbridge of the University of California, Los Angeles, School of Law has examined the import of this law in relation to these and many more aspects of behavioral science in an article published by the University called “Why a Board? Group Decision Making in Corporate Governance”,*pg 42, ^pg.46. Professor Bainbridge publishes an interesting blog that covers corporate governance and many other topics at professorbainbridge.com. The link to his blog entry on this topic is here and he makes the complete article available for download from the University of California site. Professor Bainbridge also has books for sale that examine corporate governance issues on his site.

posted by Larry at 9:31 AM - permalink

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