The inner workings of the board: evidence from emerging markets

By Ralph De Haas

A firm’s board both advises and supervises the chief executive and other executives. But how boards perform this dual role is underexplored in the literature, especially in emerging markets, where transparency and reporting requirements tend to be less advanced. In this paper we survey non-executive directors in emerging markets to find out about the inner workings of corporate boards across a variety of institutional settings. We find that the structure and conduct of boards varies widely, as do directors’ perceptions about the local legal environment. Further analysis shows that directors who feel adequately empowered by local legislation are less likely to vote against board proposals. They also form boards that play a stronger role in the company’s strategic decision-making. This suggests that a supportive legal environment allows directors to focus more on their advisory, as opposed to their monitoring, role.