Out of Sight Out of Mind: The Case for Improving Director Independence Disclosure

43 Journal of Corporation Law, 35 (2017)

Univ. of Wisconsin Legal Studies Research Paper No. 1420

44 Pages Posted: 31 Jul 2017 Last revised: 11 Jan 2018

See all articles by Yaron Nili

Yaron Nili

Duke University School of Law; European Corporate Governance Institute (ECGI)

Date Written: July 28, 2017

Abstract

Director independence is a cornerstone of modern corporate law. Independent directors are entrusted with objectively and impartially monitoring management and ensuring that the interests of shareholders are well served. But translating the notion of independence into practice is far from a simple task, and while regulators and stock exchanges have tackled this elusive standard in different ways, for the most part their attempts have come up short. Currently, boards designate themselves as independent, and as this Article demonstrates empirically, they provide little information to investors regarding the considerations that supported their designation. Regulating director independence is at heart a means of empowering investors to make informed decisions about where to invest and how to vote. The current regime of regulating director independence is blind to this function. It shuts investors out of the process, allowing boards to designate their own independence with virtually no transparency or investor oversight. This lack of information is particularly concerning considering the importance of effective disclosure on capital markets. To that end, the SEC has recently requested input on means to improve its current disclosure rules under regulation S-K. This Article is a response to that request. It argues that investor accountability is a core function of regulating director independence and uses a theoretical framework and empirical findings to assert that the current system fails to achieve this end. The Article then proposes regulatory reforms aimed at a shift towards an enhanced disclosure regime.

Keywords: Corporate Governance, Board of Directors, Disclosure, Securities Regulation, Corporate Law, Director Independence

JEL Classification: K2, K22, G34, G38

Suggested Citation

Nili, Yaron, Out of Sight Out of Mind: The Case for Improving Director Independence Disclosure (July 28, 2017). 43 Journal of Corporation Law, 35 (2017), Univ. of Wisconsin Legal Studies Research Paper No. 1420, Available at SSRN: https://ssrn.com/abstract=3010343

Yaron Nili (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

European Corporate Governance Institute (ECGI) ( email )

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

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