Director Independence in the Independent Sector

Abstract

Many corporate governance reforms currently in vogue in the for-profit sector rely on the value of independent directors. It is not hard to imagine state or federal regulators applying the concept to cure perceived accountability and other failures in nonprofit corporations. Indeed, a few such calls have already been heard and some states already have limited experience with independence requirements. Such adaptations, however, raise important questions regarding the useful meaning of "independence" in the context of nonprofit directors. The concerns that independent director reforms seek to counterbalance - financial interestedness, lack of objectivity, and domination - have different dimensions in the nonprofit sphere than in its for-profit counterpart. This Article explores how a notion of independence would deal with these issues in the particular context of nonprofit corporations. With these issues thus delineated, it then asks whether and how reforms calling for more use of independent directors might be of benefit to the nonprofit sector and nonprofit law.

Keywords: independent director, corporate governance, nonprofit