Independent Directors: After the Crisis

28 Pages Posted: 15 Jul 2013

See all articles by Wolf-Georg Ringe

Wolf-Georg Ringe

University of Hamburg - Institute of Law & Economics; University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: July 15, 2013


This paper re-evaluates the corporate governance concept of ‘board independence’ against the disappointing experiences during the 2007-08 financial crisis. Independent or outside directors had long been seen as an essential tool to improve the monitoring role of the board. Yet the crisis revealed that they did not prevent firms’ excessive risk-taking; further, these directors sometimes showed serious deficits in understanding the business they were supposed to control, and remained passive in addressing structural problems.

A closer look reveals that under the surface of seemingly unanimous consensus about board independence in Western jurisdictions, a surprising disharmony prevails about the justification, extent and purpose of independence requirements. These considerations lead me to question the benefits of the current system. Instead, this paper proposes a new, ‘functional’ concept of board independence. This would redefine independence to include those directors that are independent of the firm’s controller, but at the same time it would require them to be more accountable to (minority) shareholders.

Keywords: independent directors, corporate governance, minority protection, financial crisis

JEL Classification: K22, G34

Suggested Citation

Ringe, Wolf-Georg, Independent Directors: After the Crisis (July 15, 2013). Oxford Legal Studies Research Paper No. 72/2013, Available at SSRN:

Wolf-Georg Ringe (Contact Author)

University of Hamburg - Institute of Law & Economics ( email )

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University of Oxford - Faculty of Law

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European Corporate Governance Institute (ECGI) ( email )

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