Deconstructing Independent Directors

39 Pages Posted: 17 Jan 2012 Last revised: 1 May 2012

See all articles by María Gutiérrez Urtiaga

María Gutiérrez Urtiaga

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa; European Corporate Governance Institute (ECGI)

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: January 17, 2012

Abstract

In this paper we argue that boards of directors lack the mandate, the incentives and the ability to control insiders, especially in jurisdictions where the main agency problem arises between controlling and minority shareholders. We analyze the problems that render independents an inefficient monitoring device for companies with concentrated ownership structures and conclude that the current focus of the regulators and codes of best practice on empowering independents is ineffective and companies would be better off choosing their board members at liberty. Nevertheless, we also present two different proposals for reform: independents as gatekeepers for the regulator and independents as surrogates of the minority. Both proposals are based on the idea that if independent directors are expected to monitor controlling shareholders their most important characteristic should be accountability rather than mere independence.

Keywords: Independent directors, Board of directors, Concentrated ownership

JEL Classification: G32, G34, K22

Suggested Citation

Gutiérrez Urtiaga, María and Sáez Lacave, Maria Isabel, Deconstructing Independent Directors (January 17, 2012). ECGI - Law Working Paper No. 186/2012, Available at SSRN: https://ssrn.com/abstract=1986842 or http://dx.doi.org/10.2139/ssrn.1986842

María Gutiérrez Urtiaga (Contact Author)

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 624 58 40 (Phone)
+34-91 624 96 07 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law ( email )

C/ Kelsen 1
Madrid, 28049
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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