Consensus in diverse corporate boards

Many directors are not simply insiders or outsiders. For example, an officer of a supplier is neither independent nor captive of management. We use a spatial model of board decision-making to analyze bargaining among multiple types of directors. Board decisions are modeled using a new solution concept called consensus. We use consensus to show that the information a new director brings is more important than the new director's impact on bargaining when the board is large and not too diverse. Our model suggests broadening the regulatory definition of independence and requiring a supermajority of outsiders. It also cautions that strong penalties, such as those imposed by Sarbanes-Oxley erode incentives when board performance is difficult to measure.