Governance gambits and business judgment in in/out-sourcing tactics

This article investigates the burgeoning trend of proceduralization within corporate law, with a spotlight on the proceduralization of the board of directors. It delves into the contrasting strategies regarding board composition, scrutinizing the delicate balance between nurturing skill diversity within the board and outsourcing specific functions. Through an extensive analysis of existing literature and pertinent case law, the paper examines the intricate faced by corporations when presented with the choice between specialized directors and external consultants. It scrutinizes concepts such as the business judgment rule in the age of external expertise, particularly emphasizing its inherent paradox. This contradiction manifests in situations where endeavors devoid of consultancy expenses, ostensibly perceived as more financially advantageous for shareholders, may unexpectedly expose directors to potential liability owing to perceived harm to shareholder interests. Conversely, analogous operations incurring consultancy costs, ostensibly affirming equity, may elude similar scrutiny. In addition, the paper delves into the realms of risk management and corporate accountability, particularly in the contemporary landscape marked by a heightened reliance on outside experts. Furthermore, the paper explores the idea of “theatre boards” resulting from the increasing dependence on external expertise, and it identifies two pivotal cross-sectoral shifts shaping corporate governance dynamics: the growing influence of diverse stakeholder cohorts and the ascendancy of consultancy firms as providers of board services. This interplay between political economy and consultancy trajectory highlights significant changes in the corporate advisory landscape. In conclusion, the paper reflects on the strategic evolution of consultancy firms, envisaging a shift towards becoming board service providers à la Bainbridge. By examining the implications of employing outside experts on corporate governance accountability, the application of the business judgment rule, and conflicts of interest protections, this study underscores the transformation of boards of directors into stages for performance. Therefore, the paper to the literature by shedding light on the evolving dynamics of corporate governance and the role of external expertise therein, particularly concerning the application of foundational pillars of corporate law such as the business judgment rule, fiduciary duties, accountability and conflicts of interests.