Financial knowledge for corporate boards: what should board members know?

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José Miguel Pinto dos Santos


Although there is a vast body of research on corporate governance and corporate boards, no one seems to have addressed yet the following question: What should corporate board members know of financial theory and practice to properly discharge their fiduciary responsibilities? The lack of reflection on this issue is somewhat surprising given the central role financial matters are supposed to play in board’s discussions and decision making. The objective of this study is to offer a first reflection on this question. Different views of what a corporation is and who “owns” it, whether it is only shareholders or also a broader set of other stakeholders, result in different requirements concerning the financial knowledge board members should have. One such view is agency theory which considers that the main role of management is to create value for shareholders. From this perspective it will follow that board members should understand primarily the dynamics of value creation, with the concomitant focus on long-term strategy formulation. Another view is stakeholder theory which stresses the importance of the survival of the corporation. In this case the board should be conversant primarily with short term financial management, specially cash or liquidity management. The counterintuitive result is that when the board gives priority to the interests of shareholders, in opposition to the interests of other stakeholders beyond what law and good commercial and management practice recommends, it should focus primarily on long time value creation, while the more inclusive stakeholder view requires more attention on short-term cash management.


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Author Biography

José Miguel Pinto dos Santos, AESE Business School

José Miguel Pinto dos Santos holds a PhD in Economics from Hiroshima University (1995) and a PhD in History from Universidade Nova de Lisboa (2012). Since 2006 he has been Full Professor of Finance at AESE Business School (Lisbon), having previously been Assistant Professor (from 1995 to 2000) and Associate Professor at Faculty of Economics of Hiroshima University (from 2000 to 2006).

He has also been invited professor at Hiroshima University of Economics (2001-2011), Southern Taiwan University of Science and Technology (2009-2011), Keio University (2018-2019) and Meiji University (2019). 

From 2010 to 2017 he was member of the Accreditation Board of the EFMD Programme Accreditation System.


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