At its core, this is a discussion about the fundamental conflict of interest in the corporate world – that of principal and agent. In case they’ve forgotten, independent directors are agents and they too have conflicts.Conflicts of interest are a reality of life. To suggest otherwise is naive, or worse.
It was not that long ago that, under the oversight of majority-independent boards, a large proportion of our major banks and financial services companies were keel-hauled by the Hayne royal commission.Empirical research by a number of academics suggests that independent directors aren’t the panacea they like to portray, and perhaps they aren’t possessed of any superpowers.
It is important to remember that what is regarded as good governance in Australia is largely dictated by the ASX Corporate Governance Council, of whose members only a minority represent investors. Furthermore, good governance of the day is usually a reaction to the last great disaster or scandal. For example, the independence imperative has only existed since 2003.
The other way shareholders might seek to influence the composition of a board is by nominating one or more independent directors for election at a general meeting. To do this, one would have to own more than 5 per cent of a company .