Broughman on Independent Directors & VC-Backed Firms

Brian J. Broughman (University of California, Berkeley - School of Law) has posted The Role of Independent Directors in VC-Backed Firms on SSRN. Here is the abstract:

This paper seeks to explain the widespread use of independent directors in the governance of VC-backed firms, and in particular their use as "tie-breakers" on the boards of these firms. I show that allocating a tie-breaking vote to an unbiased "arbiter" can reduce the opportunism that would result if either the VCs or the entrepreneur were to control the board. Consistent with my theory, data from Silicon Valley startups illustrate several mechanisms entrepreneurs and VCs use to select an unbiased independent director. I conclude by considering implications for corporate law and fiduciary obligations in VC-backed firms.