How independent are Independent Directors?

One way of improving the governance framework in companies is by having more “independent” directors on boards. Despite the view that directors who have no stake or share in the upside of the company may not be sufficiently motivated to add value, this method does improve governance within the company.

The board room culture is changing led by a few right thinking companies. Due to new and younger blood being introduced into boards, board papers and other strategies are actively discussed. The ‘old boys’ club is being slowly dismantled and there is lot more talk about governance and transparency. However, there are only few companies who have led the way. It’s time that all PLCs introduce younger directors to their boards to infuse fresh ideas and new thinking which may improve independent thinking as well.

However, true independence and effectiveness of an “independent” director can only be measured by the director’s engagement in the boardroom and the freedom and willingness to leave the board if he is forced to compromise on the principles of good governance and not merely through the application of rules. Some say that older directors have a better ability to express their freedom however, I would disagree with such a view, as I consider the older you are- you become more dependent and may not be willing to quit and also may not have the motivation to learn.

In summary good governance should be in principle and not about meeting the code requirements or rules. Attitude for implementation should be to strengthen the value system in the company. Most of the negative publicity in Sri Lanka is due to the interference by government related entities appointing persons to Boards in the pretext or cover of “independent” director appointments. Realistically, if government agencies are using their share ownership to appoint directors to boards, those persons cannot be considered independent.

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About surenraj

“Views expressed are my own”
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