Most would agree that a cornerstone of effective corporate governance rests with having a sufficient number of independent directors on the board. This is for good reason—boards must consider first and foremost the interests of the corporation and shareholders, ahead of everything else including executive management.
We see much “noise in the system” about whether long-serving directors—regardless of whether they meet any of a number of definitions of independence—should continue to be viewed as truly independent. Shareholder advisory services are looking at the issue, and institutional investor CalPERS recently called for a “comply-or-explain” approach for directors with more than 12 years of service. And now an article in a recent issue of a leading corporate governance journal supports and exacerbates this concern, saying “ever growing board tenure casts a shadow over many directors who are still legally independent, creating a caste of ‘new insiders’.”
