November 11, 2014

The Value of an Independent Director on a Board

Share This Post

There has recently been a healthy trend to include more “independent” directors on company boards. Wall Street reforms kicked off an awareness of the need for improved corporate governance. The subsequent trend and has lead to boards looking for, and recruiting more ”independent” directors – directors who are not affiliated with any particular shareholder group, and who bring significant board, industry and management experience. This trend has resulted in boards having considerably improved quality and effectiveness, as measured by various industry reports.

Having spent the last 30 years serving on many high-tech boards, both public and private, and with 35 years of experience as a CEO, I’d like to talk more about the real benefits of having a professional, independent director on a board. I’ve seen it from both sides.

First, there is the key aspect of corporate governance. Independent directors, particularly those who have extensive board experience and ongoing board education, can spot the key legal and governance issues early. They can provide the stimulus for the required debate and due diligence that should accompany any meaningful board topic. Too often, issues are ”presumed” to be good for the company, do not get a healthy debate, and are passed by a quick show of hands. A meaningful debate, even when there is a unanimous desire to approve the issue, can protect against board liability further down the road. Put another way, a thoughtful discussion on any issue provides legal coverage that is absent if items are just quickly pushed through the board with little or no debate.

Then, there is industry knowledge and management experience. Independent board members can bring both industry knowledge and management experience to a board that otherwise features investors and shareholders who, while excellent at investing, may not have the management experience or specific industry knowledge to challenge management’s assumptions. This can be particularly important when discussions with management require a second opinion on key operational points, including executive compensation.

Next, factor in the benefit of an unbiased opinion. Independent board members can and should present opinions that are not tied to the interests of management or any shareholder group They can also bring views that may be politically difficult for other directors to discuss, given ties to shareholder groups or management.

Finally, there’s the huge benefit of constructive mediation. Too often, there are different and conflicting interests around the boardroom table. A good independent director can and should be a powerful force for mediation, brokering compromises between shareholder groups, and resolving the different views between management and the board that inevitable occur. The result is a board that can make progress without acrimony.

In conclusion, both public and private boards can benefit from experienced independent directors. Such directors should have extensive management experience, significant board experience, and ideally have participated in ongoing board education programs. Equally important are people skills and “chemistry” – a good independent director should have a professional demeanor and, at the same time, have the personality to be able to build positive business relationships with other board members and management.

Share This Post