Benefits Of Independent Directors And Why They Are Ubiquitous In Businesses

Written by Ian Tan

The interests of various stakeholders are represented within a Company’s Board of Directors – the CEO, the founders, other senior executives, venture capitalists and/or other big investors, and shareholders with large holdings. The common law edicts on directors’ duties places the company’s interest as the paramount consideration for directors. Nonetheless, with the spotlights being shone on how corporate veils can be abused, there has been a call for measures to be introduced checks and balances to higher management of companies, effectively advocating for interests of stakeholders not previously represented at that level.

This brought about the introduction of independent directors. An independent director represents neither institutional investors nor the founders and can bring balance to a board. Below are key points on the benefits of having independent directors onboard.

  1. Impartiality

An independent director is not as invested in the company as executive and investor board members; this can allow the independent director to be more impartial and objective. Independent directors tend to benefit from having a more impartial perspective and tend to be more objective as far as moving the company in a beneficial direction. Ultimately, an independent board member’s paramount accountability is still to the wellbeing of the company and the shareholders’ interests.

  1. Commitment and focus

In start-ups, it is not uncommon to only have investors on your board of directors, this means running the risk of having board members whose attention is split between several companies they have vested interest with. It is likely that these members are subject to a myriad of variables that may potentially impact their level of engagement or commitment, for example, how heavily invested they or their firm are in the Company, or how prioritised the Company is in relation to their portfolio. An independent director can offer focus and depth of perspective to the Company.

  1. Expertise to boost performance

With independent directors, the Company has myriad options to choose from. The Company can engage individuals with the expertise in a specific areas in which the Company wants to focus on, such as going public; or scaling and growth; or an area that has become more urgent due to market changes, new opportunities or adverse fluctuations in the industry. This offers a dynamic that Companies with a small board and/or in the fledgling stage can take advantage of. By bringing in individuals with specific expertise via the engagement of independent directors, the Company can utilise growth opportunities and potentially avoid costly mistakes.

  1. Avenue to conflict resolution

An independent board member is able to play a pivotal role in neutralizing any conflicts that arise within the Company’s board. Due to their impartiality, independents may be a great avenue to explore or navigate disputes and conflict within a company’s top management especially when there are deep, fundamental disagreements between the stakeholders. Even though the independent director may favour one side in particular, they would be able to act as a nexus between the conflicting parties and are in a unique position to address the core issues and reach a compromise more efficiently.

  1. Mentoring and resource (network) sharing

While mentoring the CEO and executive team of the company can be shouldered by all directors, an independent director can be specifically recruited for skills or perspective needed by the Company’s CEO and/or executive team. More often than not, the experience and contacts independent director brings to a Company is a value added resource.

In conclusion, a good independent director brings focus, clear perspective and the ability to lead objective board discussions, and, if necessary, steer the Company towards better decisions and subsequently, results. Please do not hesitate to contact us should you find yourself in need of an independent director.

Disclaimer:

The information provided herein is for informational purposes only and should not be construed as professional or legal advice. While Credence Consulting Pte. Ltd. (Credence) believes that its sources are reliable, we make no representation or warranty as to the accuracy of the contents. You should contact your legal counsel to obtain advice with respect to any particular matter raised. The opinions expressed here or through our website are the opinions of the individual author only and are not legally binding, and may not reflect the opinions of Credence or any individual partner or director.

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