Tag: insider directors

Is there a place for more inside directors on corporate boards?

In this article in the Harvard Business Review, a law professor from the University of Calgary makes “The Case for More Company Insiders on Boards.”  From the end of World War II to the 1970s, he observes, the composition of most boards of U.S. companies was predominantly  insider—75% of board directors were insiders in the decade after World War II.   But, he maintains, that changed “in the wake of the rising distrust of all American institutions” after Viet Nam and Watergate in the 1970s, as new concepts of corporate governance emerged and the NYSE began to adopt listing rule changes, such as a requirement for independent audit committees.  And after the Enron and WorldCom financial scandals of the 2000s, further changes in corporate governance requirements and expectations for board independence ultimately made the overwhelming prevalence of independent directors on corporate boards and committees de rigueur.  By 2005, the author reports, 75% of directors of large U.S. public companies were independent and, as of 2023, that percentage had risen to 85%. But is that necessarily a good thing?  Maybe not so much, the author contends. Rather, he maintains, the “empirical research on director independence suggests…that business leaders should re-consider the merits of inside directors.”