In this paper, we examine independent directors as a legal transplant from dispersed ownership systems to concentrated ownership ones. We focus on Continental Europe, Japan, Brazil, Russia, India and China. Our main thesis is that independent directors have a different and relatively narrower role to perform in controlled corporations.
We also argue that in the law and practice of controlled corporations independent directors often play an even weaker role than economic theory would predict. In order to prove our thesis, we compare the legal regimes applicable to independent directors across countries. We find that the notion and functions of independent directors vary remarkably across our sample jurisdictions. Firstly, the role of independent directors is not always
specified. Secondly, independent directors often play a role in audit committees and, less frequently, in nomination and remuneration committees. However, they are rarely tasked with the vetting of related-party transactions and other conflicts of interest situations. Moreover, controlling shareholders often perform some of the functions that are typical of independent directors in diffuse ownership, such as the hiring and firing of Managers and the setting of their remuneration. We conclude that the weak role of Independent directors in several countries shows that they are often appointed mainly to accommodate
investors? preference for western-style corporate governance.
We develop a dynamic model of board decision-making akin to dynamic voting models in the political economy literature. We show a board could retain a policy all directors agree is worse than an available alternative. Thus, directors may retain a...Read more
Auditors play a major role in corporate governance and capital markets. Ex ante, auditors facilitate firms’ access to finance by fostering trust among public investors. Ex post, auditors can prevent misbehavior and financial fraud by corporate...Read more
A new regulation issued in the end of 2013 as part of the anti-corruption campaign in China leads to a wave of resignation of politically connected independent directors (PCID). I find while firms with PCIDs have...Read more
In France, the regulation of related party transactions (RPTs) involves three steps following the notification to the board of an RPT. First, the board gives its prior authorisation to the transaction. Those who are self-interested do not take...Read more