Behavioral finance in corporate governance

"Corporate governance disasters could often be averted had directors asked CEOs questions, demanded answers, and blown whistles. Milgram (1974) reveals an innate psychological predisposition to obey authority. Such undesirable agentic behavior, dubbed a Type II agency problem, explains directors' acquiescence. Other work reveals dissenting peers, conflicting authorities, and distant authorities weakening such acquiescence. This justifies independent directors, non-executive chairs, and independent directors meeting without CEOs. Empirical evidence that such measures work is scant. This may reflect measurement problems, for apparently independent directors often have financial or personal ties to CEOs; or other behavioral factors that reinforce director subservience"--National Bureau of Economic Research web site.