Consensus in Diverse Corporate Boards
Nina Baranchuk and Philip H. Dybvig

Many directors are not simply insiders or outsiders. For example, an officer of a supplier firm is neither independent nor captive of management. We use a spatial model of board decision -making to analyze bargaining among multiple types of directors. Board decisions are modeled using a new barg aining solution concept called consensus. We use consensus to develop the idea that the information a new direc tor brings to a large board is more important than the new director's impact on bargaining, provided existing p references on the board are not too diverse. Our model suggests broadening the regulatory definition of independ ence of directors and requiring a supermajority of outsiders. The analysis also shows that strong penalties such as those imposed by Sarbanes-Oxley tend to erode incentives given that board performance is difficul t to measure.