2.4.2 Objective monitor model

The ability, competence and quality required to judge managerial decisions properly is a subject dealt with by the objective monitor model. The primary task of the board according to the definitions of this model is monitoring and evaluating managerial performance, focusing on independence, scepticism and loyalty to shareholders (Lin 1996: 901; Langevoort 2001: 797-798; Harvard Law Review Note 2006: 1557). Monitoring must prevent executive directors from self-dealing and from expropriating the company’s assets, resulting in lower agency costs. Furthermore, the objective monitor ‘plays a critical role in vetting and disclosing information that managers might distort or conceal’ (Harvard Law Review Note 2006: 1558). Under the monitoring model the financial results are the main indicant for evaluating managerial behaviour, but this ordinary measure leaves out of consideration circumstances that occasionally might influence financial results, such as heavy start-up costs and natural catastrophes. Due to the ambiguous signals information may give, independent NEDs require the quality to assess financial and non-financial information, which is acquired through sophisticated and independent information systems (Eisenberg 1975: 399). Opponents argue – based on the managerial hegemony theory1 – that the board cannot bridle management due to biased nomination and selection procedures, constraints on NEDs’ ability and weak incentives to monitor (Lin 1996: 912-917). Another concern is the adversarial attitude independent NEDs are stimulated to take and that can lead to discord within the board of directors2 (Harvard Law Review Note 2006: 1558). As far as that is concerned, Bhagat and Black (1999: 955-956) philosophise about a more equal mix of (independent) NEDs and executive directors on a board, which might be more beneficial to an organisation. This is contrary to the recent developments showing a movement towards a more independent board.