In their zeal to reform corporate governance regulatory agencies and shareholders may demand changes with suboptimal or even negative consequences. In an article in this week's Economist Martin Lipton describes "Misery in the Boardroom".

The other danger, which the paper makes all too clear, is that the sheer volume of reforms will overwhelm boards. A particular threat is that valuable time will be spent ticking boxes. Is, for example, the emphasis on directors being “independent” preventing boards from having enough people with experience of the industry in which a firm operates? (Surely one of the lessons of Wall Street’s recent failure is that too few bank directors could spot the difference between a CDO and a CDS?) As the report puts it, “The irony is that in seeking...independent directors who will hold management more accountable, the result has been to promote directors who are more wholly dependent on management to inform their views of the company and its business.”

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