Is Director Independence Enough?

January 28, 2009 at 3:02 am 1 comment

The Merriman-Webster dictionary defines “independent” as: not subject to control by others, not looking to others for ones opinions or for guidance in conduct, and so on. The NYSE and NASDAQ have a slightly different definition of independence as it relates to Directors and Boards. To simplify, the NYSE says that a Director is independent if he/she has “no material relationship” to the company and according to the NASDAQ, a Director is independent if there is no “interference” with his or her independent judgment.

I think this latter definition comes closer to the way we must think of Directors in this environment of economic uncertainty. Directors should, at the very least, have no material relationship with the company on whose Board they serve. This should be the minimum. In addition to this, all Directors need independence of thought and opinion and moreover must be able to clearly articulate their ideas even if they diverge from the rest of the board. In fact, this is when it becomes most important to communicate clearly. When the group (in this case, a board) is all in agreement about something that one Director feels is not in the best interests of the company or its shareholders then this Director must have the conviction to speak up and vocalize their opinion. Autonomy and self sufficiency should be part of every Director’s mandate.

This independence of thought and convictions has certainly been discussed and seemingly decreed in the past. However, isn’t it time that it is thoroughly endorsed and applauded?

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Entry filed under: Corporate Governance. Tags: , .

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1 Comment

  • 1. Frank Feather  |  February 2, 2009 at 7:21 pm

    Patricia:

    I agree entirely with what you say.

    Having served as an Independent Director of an SEC-listed U.S. company, our board and the CEO (Chairman) always welcomed and sought out fully independent viewpoints. And I being “frank” by name and nature was never reluctant to voice my opinions.

    Indeed, at our very first organizational Board Meeting (it was a company spin off) I interrupted a presentation of the financial statements to strongly suggest that unless the company restructured its debt, it would not be successful. Others supported my explanation, the debt was restructured, and the company went on to success.

    It is essential for all Directors to protect shareholder interests. And it is particularly important for Independent Directors to keep this focus in front of the entire board at all times.

    I would go further and suggest that every Board of Directors ought to have at least a majority of its Directors as Independent, if not all of them.

    Cheers! Frank


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