3.4.6 Counterbalance provided by independent directors

As stated above, US corporations traditionally have a strong CEO who is also the chairman. Nevertheless the American corporate world wants a system of checks and balances to guard against an unduly powerful CEO/chairman by having a number of independent directors on the board and ensuring that committees consist exclusively of independent directors.

This is different from the UK where a small majority of NEDs on the board is deemed sufficient to provide for proper balance.

Another reason why US corporate governance emphasizes the role of independent directors is that traditionally outside directors simply provided advice. The board was protected by defence mechanisms such as poison pils, staggered boards and the proxy system and had relatively few genuine outsiders. Under the current regulatory environment and with shareholder activism encouraging short-termism, it is feit to be good for the corporation to have truly independent directors who can bring an independent view from outside and will give effective consideration to all interests concerned.1

It has been argued that this overemphasis on independence is only a disguise for the wish to be politically correct. Martin Lipton has said to me that he worries about how an "independent" director can know enough about the business. Professor Maarten Kroeze makes the same point in an article in the Dutch review "Ondernemingsrecht" with reference to the US.2 The Walker Review of 2009 in the UK also raises concern about this point. There is an awareness of the danger of selecting directors mainly for their independence without regard to their knowledge of the business.