What does this mean when it is said that Board of Directors should be allowed to act independently of management but management should not be allowed to act independently from the Board?
If management is acting independently of the Board, then you have an agency problem, as the Board is theoretically representing the shareholders and management serves at the Board’s pleasure. Rogue management is looking after their own interests rather than the shareholders (which is generally what’s happening out the in the real world). The Board must be independent of management in order to rein in this agency problem and institute proper controls to keep their managers in line with shareholder objectives. If management exerts extraodinary influence over the Board, then shareholders cannot be assured that their directors are controlling the behaviour of management, rather management has free rein of the shop.
This is why having a CEO on the Board for example, especially in a chair role, is bad governance. I don’t understand why more activist investors don’t push for this practice to end.
alrighty, i get it, thank you.