Rethinking the Independent Board of Directors

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Rethinking the Independent Board of Directors

March 8, 2007 11:19 AM
From BusinessFinanceLink, Issue #385

A new study by law firm Schuyler Roche & Zwirner has found no evidence that independent directors enhance shareholder returns. Senior partner Eric Fogel and colleague Andrew Geier examined 254 public companies' backgrounds, finally concluding that the current corporate governance paradigm is the reverse of what it should be. Fogel and Geier's article, Strangers in the House: Rethinking Sarbanes-Oxley and the Independent Board of Directors (PDF), claims that the SEC, NYSE, and NASDAQ should foster a model where owner-shareholders or "oversight shareholders" command public company boards rather than independent directors. "It stands to reason that shareholder-owners -- not disinterested non-owners -- would demonstrate greater zeal in monitoring management of the companies they own and should therefore comprise a majority of a public company's directors," Fogel explains. "Owner-shareholders are the most efficient profit maximizers. They'll ask the tough questions and probe because it's in their interest to do so. All shareholders will benefit as a result."

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