Deconstructing Independent Directors

Deconstructing Independent Directors

María Gutiérrez Urtiaga, María Isabel Saez

Series number :

Serial Number: 
186/2012

Date posted :

January 01 2012

Last revised :

March 16 2012
SSRN Share

Keywords

  • Independent Directors • 
  • board of directors • 
  • concentrated ownership • 
  • monitoring • 
  • corporate law

In this paper we argue that boards of directors lack the mandate, the incentives and the ability to control insiders, especially in jurisdictions where the main agency problem arises between controlling and minority shareholders.

We analyze the problems that render independents an inefficient monitoring device for companies with concentrated ownership structures and conclude that the current focus of the regulators and codes of best practice on empowering independents is ineffective and companies would be better off choosing their board members at liberty. Nevertheless, we also present two different proposals for reform: independents as gatekeepers for the regulator and independents as surrogates of the minority. Both proposals are based on the idea that if independent directors are expected to monitor controlling shareholders their most important characteristic should be accountability rather than mere independence.

Authors

Real name:
María Isabel Saez