In their path-breaking article, A Team Production Theory of Corporate Law, Margaret Blair and Lynn Stout provided a new theory of the board of directors in a corporation. Drawing on the economic theory of team production, Blair and Stout argued that the board of directors serves as a mediating hierarchy for the firm as a whole, encouraging firm-specific investments from team members and reducing shirking and opportunistic behavior. While Blair and Stout provided a dramatically different view of the corporation from the conventional principal-agent account, they also delineated limitations to their proposed theory. Most importantly, they suggested that the mediating hierarchy model does not apply to private corporations. They explained this caveat by contrasting the concentrated stock ownership of private corporations with the widely dispersed share ownership of public corporations, which they argued frees directors from the control of shareholders, executives, and employees.

This Essay, written for the Sixth Annual Berle Symposium, takes the stated limitations of Blair and Stout’s work as a starting point. Through an examination of private company boards, both of startup corporations and other private corporations, this Essay shows that Blair and Stout’s theory need not be limited to public corporations. Specifically, it examines the following ways that the mediating hierarchy model is reflected in some, but not all, private company boards: the “hiring” of the board, the use of independent directors, and the mediating function of the board. Although the board of directors does not act as a mediating hierarchy in all private corporations, Blair and Stout’s theory furthers our understanding by providing special insight into some.