Question

Discuss why it is important, from a governance perspective, to have independent outside directors on a board of directors.

Answer 1

It is important to have independent outside directors on board of directors.An independent director represents neither institutional investors nor the founders and can bring balance to a board.The following are the reasons why it is important to have independent outside directors on a board of directors,

• An independent director is not related to the company as an executive or as an investor.This makes him to be objective and impartial. Independent director's job is to look for the well being of the shareholders' and the company's interest.
• An independent director can bring more focus about the company.If the company is newly incorporated and there are only investors in it then the risk will be so high.
• With an independent director in the board there is a chance of selecting an expert in a specific area where there is growth.Using this expert the company can take advantage of growing opportunities and avoiding costly mistakes.
• Independent directors play an important role in resolving conflicts.They are in a unique position to go through the core issues and resolve much faster.
• An independent director can be specifically recruited for skills and expertise or perspective needed by the executive team.He can be the key to a more sane management team.He needs to have a network of contacts to assist or enhance the needs.