What is the role of corporate governance?
In an interesting article William George analyses the different roles a member of corporate boards can have depending on the seat he holds, independent director, chair and CEO, CEO only, or chair only (Board governance depends on where you sit, McKinsey Quarterly, February 2013).
George explores the different situations with an expert eye due to his broad experience on the field.
I enclose the link to the article, to let you view George's full analysis.
I add up some personal conclusions on the role of independent directors, who may add in my opinion real value to companies.
The different roles that board members can have depend both on his point of view and others’ board member expectations about it. Every company has his own culture and it may take time to find the best way to make the cooperation between board members work properly. In any case, the structure to be applied depends on the firm’s culture: boards must be pragmatic enough to adapt to the individuals involved rather than put a rigid structure in place.
Independent directors add experience and an independent point of view to the board, but may be less informed than the other board members about the companies. It is vital for a company to set up effective procedures to give to corporate governance all the instruments to be informed about the business and risks they may occur.
It is also important to develop a strongly reliable “market of reputations”: the presence in the board of universally well know professionals increases the reliability of a company, and maybe even his value.
Independent directors may be a real added value in a crisis situation, where their experience should help to have a more complete point of view of problems.
In family companies the role of independent directors may be underestimated. In Italy, where family-held firms invoicing less than 50 million of Euro represent 57% of total firms, the choice of getting independent directors is often taken in crisis situations.
Independent directors should guarantee that sound governance principles are applied.
And finally a question: profit generation for shareholders is still the sole goal for a board? In my opinion, independent directors have also the role to guarantee the rights and the interests of all stakeholders.
Francesco Ippolito
info@ippolitoconsulting.com, twitter @fraippolito
February 21st, 2013
https://www.mckinseyquarterly.com/Governance/Boards/Board_governance_depends_on_where_you_sit_3059