Usefulness of Independent Directors


This post is not titled ‘benefits’ of an ID because there are many benefits that are anticipated by the requirements for appointing IDs to public interest entities and many understand them. But it’s important that the benefits accrue to the entities that appoint IDs. Hence, IDs need to make themselves useful to ensure their skills, experience, acumen and objectivity contribute to the governance of the public entity.

“What’s important is, if more and more of the decision-making in public interest entities is in the hands of independent directors, those independent directors require the information that they need to make it work”

Does your ID ask for more relevant information without fearing management displeasure over additional efforts? Can your ID ask the most difficult or obvious question without feeling uncomfortable? Is your ID able to make management think of alternatives and mitigate a wider range of risk factors than the normal risks that have been discussed in the past? Reliance on IDs are on the increase in public interest entities due to regulatory pressure. We need those IDs to perform their task to the best of their abilities with the due care and diligence expected of them.

Some ways of how IDs can demonstrate their usefulness and independence to contribute to the overall governance in the boardroom are:

1. Be free of bias: Human beings have relationships and are biased. If robots with AI were employed they would be free of bias! Despite this IDs must ensure their advice is not tainted by conflicts of interest or existing corporate politics.
2. Bring to bear out of the box thinking: This does not mean some earth shattering matter but bring in a different view or perspective to business issues as an outsider not constrained with internal processes.
3. Bring credibility to decisions: Objective impartial decision making can add that all important boost of credibility focused on the well being of the entity and putting shareholder interests first.
4. Contribute with the specialist knowledge: IDs are appointed to fill a gap in skill and experience in a specialist area. Therefore, ensure that specific knowledge is used to bring a different view to issues and discussions. For example the audit committee chair should use his/her prior experience to identify risks, anticipate weaknesses and mitigating controls when responding to issues.
5. Be a sounding board to the CEO: The ID should be approachable and offering the CEO a sounding board to test ideas, concerns, etc.  Because the CEO may need to discuss strategies with a person who is somewhat removed from the day-to-day activities, to bring a fresh but applicable perspective.


About surenraj

“Views expressed are my own”
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