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» Across the pond

with David Anderson

David Anderson is President of the Anderson Governance Group

Barometer of quality
are executive directors. That seems a bit at odds
with the other feature of British boards; a clear
separation of chair and chief executive, which
aims to enhance board independence.
From a British point of view, North American
boards might seem in danger of being out-of-
touch, as they tend to favour being composed
almost entirely of independent directors.
While in Canada the board leader is often an
independent chair, as in the UK, board leaders
in the US tend to be of the combined chair and
chief executive variety.
The more ‘pure’ independence model has
the apparent advantage of providing role-clarity
and avoiding potential ‘built-in’ conflicts of
interest because directors don’t have to be
trusted to switch hats from ’management’
to ‘governance’. Using an independence
criterion when selecting directors also provides
management with a board composed of more
non-executive directors, who may bring fresh
insight from outside the industry.
In speaking with shareholders, directors and
executives operating within these models, it
becomes clear that no system has answered
this question to everyone’s satisfaction. I

The question of director independence would offer, though, that informed North
American observers are seeing the very real
benefits of having the inside knowledge of
is likely to be raised. executive directors around the boardroom
table. Some argue that management’s hand
may be strengthened by a purely independent

hen a company is in the news to function in its oversight and advisory capacity board as directors are too removed from the
regarding its governance without reference to management. Independent business and lack the requisite knowledge and
the question of director thought provided by such a board in reviewing confidence to act with resolve.
independence is likely to be the work of management may result in better However, British boards may do well
raised. Justified or not, the degree of director decision-making that is more in line with the to consider the legitimate concerns of
independence is often viewed as a barometer of long-term interests of the company. stakeholders and take deliberate action to
the overall quality of governance, because many Even boards that are considered sufficiently reinforce the independence of the board. In
see it as a necessary (though not sufficient) independent are still suspected to lack addition, adopting a stakeholder engagement
condition of fair dealing and an unbiased independence of mind. This isn’t aided by the process is a good way of reaching out to
assessment of managerial performance. fact that boards often self-certify as to their stakeholders in order to understand their
Director independence is always on the independence. If only directors were entirely concerns and communicate how appropriate
radar of shareholders, regulators and free to exercise judgement, the reasoning goes, board independence is achieved, as well as
exchanges, whether they are based in Canada, boards would be effective at standing up to how it is balanced with the additional value-
the US or the UK. Directors are feeling the self-interested others. Board performance would adding capabilities of the board, such as its
mounting scrutiny, rising in parallel with public then be improved, board decisions would be skills, experience and knowledge, which all join
mistrust of powerful corporations, resentment fairer and corporations would be more ethical. together to make it effective.
of their ‘over-paid’ executives and suspicion But is this true? While the concept of director
of behind-the-scenes dealing. Once doubt is independence is as highly valued in the UK as » About the author
raised over the quality and ethics of corporate it is in North America, approaches to achieving
David Anderson MBA PhD ICD.D is the
decisions, the independence of the board that end differ in practice.
President of the Anderson Governance
comes into question. From a North American point of view,
Group based in Toronto. He can be
Independence is so attractive because of the British boards look a little weak on director
reached at
view that an independent board would be able independence, given that about half of directors
and +1 (416) 815 1212.

18 w w w . c h a r t e r e d s e c r e t a r y. n e t

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