You Need Your Independent Directors – More Than You Think

No one likes a party pooper

After fighting tooth and nail to get a deal momentum going, it’s natural for management to want these hard-fought deals to float through the board with little to no questions. No need for celebration or appreciation, just a big bright green light.

After all, “the team” has thought this through and “we” have all the bases covered. The last thing anyone would want at this point is an unexpected detour into more comprehensive due diligence or worse – a hard stop altogether.

No healthy board is immune to tension

The absence of disagreements should raise a serious red flag. Just as all real healthy relationships are built on the bedrock of disagreements and then rigorous conflict resolution, so it is with a healthy board process.

A board without disagreements is simply a dysfunctional board with directors that are not pushing the boundaries hard enough. And yet this is the sad reality for many organizations. I’ve seen too many of this play out.

The perfect oversight for companies

The independent director, by definition, is a board member who has no relationship with the company, as well as its related corporations, substantial shareholders or officers, that could interfere with the exercise of the director’s independent business judgment in the best interests of the company.

They represent the interests and voice of minority shareholders who, unlike institutional investors, do not own large stakes of the company, enjoy direct access to management or hold management positions in a company or board. Some of them also carry niche expertise that can benefit the company greatly when engaged appropriately.

Disruption and complexity in the post-covid era

You might have noticed that the world has changed…a lot. The pandemic brought about so much disruption to businesses. In times like this, fun and games can wait. Companies need to dig deeper into their corporate governance frameworks and strengthen them. History has shown that business disruptions are always accompanied by a rise in fraudulent activity and this is exactly what we are experiencing today.

Against this backdrop, there is a need for independent directors to rise up

The growing focus on corporate governance within organizations has increased the importance of the role of an independent director in being an effective deterrent to fraud, mismanagement and lapses in corporate governance.

One way they do this is by helping the board avoid groupthink and ensuring proposed transactions support the long-term sustainability of the business, and are not merely short-term tactical plays. Their roles have gotten more complex and they need to shoulder a lot more responsibility to safeguard the broad interests of the company.

Treasure their insights and oversights

I think we need to be reminded that independent directors should no longer exist just to satisfy a regulatory requirement. Instead, the best ones are helping good companies grow even stronger. Businesses are being disrupted at a dizzying pace and we need the shepherding of independent directors to stay ahead of the game. So get the right ones in and listen to them.