Two attorneys from Schuyler, Roche & Zwirner have an article in the Delaware Journal of Corporate Law entitled "Strangers in the House: Rethinking Sarbanes-Oxley and the Independent Board of Directors," which argues that boards should be dominated by shareholder-owners rather than independent directors.  As an initial matter, the authors' use their own empirical study as well as data from other studies to point out the relatively equivocal evidence on independent directors' ability to enhance financial returns for shareholders.  The authors also point out that encouraging shareholders to hold board seats appears to lessen the agency problem created by having outside directors oversee the corporate enterprise.  In the authors' view, having long-standing shareholders serve on boards is the best way to ensure that managers are accountable to shareholders.  In additon to proposing some new reforms, their article can be viewed as part of the larger debate about whether greater shareholder power is good for the corporation.  On the one hand, a system that would ensure that shareholders have greater oversight by serving on the board, or even having a greater voice in elections, has appeal. 

On the other hand, such a system appears to disguise a problem pinpointed by many others--mainly that shareholders have diverse and sometimes divergent interests, and putting shareholders in power without addressing which of those interests should take precedence may lead to discord, not efficiency.  To be sure, the notion that shareholders have diverse interests does not necessarily undermine the validity of shareholder power.  It just leads to a further question.  Are shareholders or directors in a better position to manage the diversity of those interests?  Certainly there is an argument to be made that shareholders not only have the ability to manage their diversity, but also have enough similarities so that their diversity will not impede their ability to be effective overseers.  In the end, therefore, I am intrigued by the notion of shareholder-representation on the board, but I am not sure if I have a clear view regarding the kind of shareholder representation envisioned.  And I am sure that the type of shareholder representation--hedge fund, social responsibility fund, traditional mutual fund--can make a difference.

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