We study under which circumstances firms choose to install boards and their roles in a historical setting in which neither boards nor their duties are mandated by law. Boards arise in firms with large, heterogeneous shareholder bases. We propose that an important role of boards is to mediate between heterogeneous shareholders with divergent interests. Voting restrictions are common and ensure that boards are representative and not captured by large blockholders. Boards are given significant powers to both mediate and monitor management, and these roles are intrinsically linked.

We study how firms choose to allocate control over strategic corporate decisions between shareholders and management in a historical setting where governance design was not mandated by corporate law, but ownership structures were constrained by differences in regional wealth distributions. The general shareholder meeting is the dominant governance body, retaining control over the largest number of strategic decisions. Nevertheless, firms with a predominance of small —and plausibly less informed— shareholders empower managers by delegating control over a larger number of strategic decisions to them. Furthermore, shareholder empowerment is accompanied by statutory provisions that facilitate information acquisition, suggesting that control and information are complements. Our findings highlight that the debate on shareholder empowerment should account for the role of ownership structure and information as key determinants of the allocation of control between shareholders and management.