Monitoring and Consulting by an Imperfect Supervisor

A supervisory board might be seen as an advantageous element of corporate governance. Whether supervision of management is actually beneficial is analyzed under the assumption that the supervisor is not immune to misjudgment as a monitor or may not be a good consultant. The benefits of having such an imperfect supervisor outweigh the costs only if the quality of supervision is not too low. But if the supervisor's monitoring is simply an element of a bonus scheme, no negative efficiency effect needs to be considered, no matter how good the monitoring is. In this respect a robust supervision design exists.