Role of Independent Directors in Corporate Governance and Decision-Making

IDs have become an important feature of U.S. boardrooms. Sarbanes-Oxley and stock exchange listing standards require a majority of IDs on boards of widely held companies. In companies with controlling shareholders, IDs are appointed to act as a counterweight to controlling or major shareholders who serve as board members and officers. Private companies are increasingly realizing the value of adding IDs to their boards of directors.

For actions which significantly impact shareholders, a board can create a special committee of IDs, each of whom is disinterested and independent. Should the company be sold? Should it incur debt? Should it raise additional capital? How should the company resolve material litigation? Decisions on such matters are often fraught with conflicts of interests. IDs and special committees can mitigate the risk of shareholder actions.

Delaware and other state courts use the entire fairness standard to review certain self-dealing transactions involving controlling shareholders. The entire fairness standard requires the defendants to prove that a transaction was fair to public investors by showing a fair process and a fair price. The active involvement of an effective, empowered ID or special committee can be critical in this regard.

Listen as our authoritative panel discusses the attributes of a disinterested ID and the role of IDs and special committees in corporate governance and decision-making in both public and private companies. The panel will also discuss best practices for election and removal of IDs to ensure true independence from controlling parties.

1. Directors generally—duty of loyalty and duty of care
2. Controlling shareholders and conflicts of interest in corporate decision-making
3. Requirements of ID(s)—Sarbanes Oxley, federal and state case law
4. ID defined
5. Election and removal of IDs—control issues
6. Special committees
7. Decisions delegated to IDs and special committees
8. Use of independent auditors and independent counsel
9. ID standard of care

The panel will review these and other key issues:

• When are IDs a necessary and appropriate addition to boards or public and private companies?
• What aspects of governance and what kinds of decisions should require approval by IDs?
• What are potential conflicts of interest and tensions in appointing or electing IDs?
• How should an ID interact with independent auditors and counsel?