Marc Goldstein[*]
Introduction
In two recent articles, Bernard S. Sharfman and Steven J. Toll argue that cases of corporate malfeasance, such as the failure by Enron's board to prevent the fraudulent actions of its top executives, can be explained in part by the "dysfunctional deference"[1] of board members to corporate management.[2] Sharfman and Toll posit that outside directors who are themselves corporate executives—especially CEOs—tend to identify with the goals and interests of fellow members of the "executive class." Instead of questioning the actions of corporate managers as their own knowledge and instincts counsel, such directors defer to the company's insiders. Sharfman and Toll go on to suggest five ways to address the deference problem: (1) "[l]imit the number" of current or former executives sitting on a board; (2) set term limits for directors; (3) require directors to be knowledgeable about the company on whose board they sit; (4) "[n]ominate outside directors with diverse backgrounds"; and (5) require "minimum time commitment[s]" for board members.[3]
