This chapter looks at the extensive body of empirical research bearing on the major governance best practices recommended for boards of directors: (1) majority (and super-majority) independent directors; (2) independent board committees for things like audit and compensation oversight; (3) board diversity; (4) separating the CEO and board Chair roles; (5) reducing director commitments outside of the company, often referred to as “director busyness” or “overboarding”; and (6) avoiding interlocking directorships. The chapter finds that these best practices do not produce any real-world corporate outcomes that we care about. The possible reasons for these failures are considered.

Does agency cost theory work in the real world? The various hypotheses drawn from agency cost theory are considered in light of the relevant empirical evidence. Agency cost theory appears to be able to explain almost anything, but it predicts nothing.

Chapter 1 offers an overview of recent corporate crises and their relationship with the dominant model of boards of directors. I also present a brief historical review of boards of directors and explore why the current generation of boards that was born in the 1990s has fallen short of its expectations. Understanding why the current model has not been effective is relevant. In parallel, a close-up view of the inner workings of some boards sheds additional light on a conundrum overlooked by large-sample statistical studies. A board should understand the company’s business and the industry in which it operates, make sure its long-term orientation is sound and expand their scope beyond simple shareholder value maximization.

It is imperative that any dual-class firm public shareholder protection package is balanced, such that public shareholders are protected from the most egregious forms of abuse, but constraints are not so severe that they deter the listing of firms by founders that a relaxation of the premium tier rules would be seeking to attract.The package proposed comprises transfer-driven, director-linked and ownership-linked sunset clauses (which convert dual-class stock into one share, one vote upon the occurrence of specific events), additional approvals (treating shares uniformly as one share, one vote) for specific resolutions, conditions on post-IPO enhanced-voting share issuances, enhanced independent director appointment rights, a stronger related-party transaction regime, disclosure of inferior-voting shareholder voting, AGM-resolution proposal mechanics and enhanced disclosure requirements generally.Additionally, the FCA would have discretion as to whether to admit dual-class firms based upon broad admissions criteria, and dual-class stock would only be available to new public issuers of equity.The package gives public shareholders comfort that the dual-class stock trade-off is more likely to swing in a positive direction, and smooths the path towards permitting dual-class firms on the premium-tier in a manner that maintains the tier’s reputation while also giving founders scope to pursue their long-term visions.

If dual-class stock does not harm public shareholders, the rationale for excluding dual-class stock from the premium tier crumbles.However, if evidence from other jurisdictions shows that the share price of dual-class firms is excessively discounted, the cost of capital for such firms, if they were permitted on the premium tier, would be high, potentially prejudicing benign controllers, and even deterring flotations or incentivising premature unifications of dual-class stock into one share, one vote.Therefore, any relaxation of the premium-tier rules should be accompanied by public shareholder protections to smooth the introduction of dual-class firms and to reduce their costs of capital.Existing one share, one vote constraints, though, may also effectively constrain dual-class firm controllers.Existing legal and regulatory constraints, such as directors’ duties, related-party transaction regulations, Takeover Code mandatory offer and equality-of-treatment provisions, independent director requirements and conditions around post-IPO recapitalisations, together with psychological constraints could, in some circumstances, protect public shareholders in dual-class, as well as one share, one vote, firms.However, various flaws subsist in such protections, especially in the context of dual-class firms, which cannot be masked by market constraints, such as through the equity, debt and product markets, which are less robust in dual-class firms.