Can shareholders be wrong? For boards dealing with an embattled CEO, doing nothing may pay off in the long run.(GOVERNANCE)

Two views of board/CEO relationship persist. One is the common view that boards that are "entrenched"--or insulated from shareholder action--will ignore a struggling CEO to the detriment of shareholder interests. Such lax oversight is deemed to have played a role in allowing the recent spate of corporate scandals and record-setting bankruptcies to take place. The opposing view holds that boards that respond quickly to public sentiment could become agents of shareholders who are less informed. "[That view] is very much built on the model of a short-sighted shareholder agitator," says Ray Fisman, associate professor at the Columbia University Business School and coauthor of the working paper …