The independent director on the board of company directors

Abstract

Purpose

The purpose of this paper is to examine the views of directors of public‐listed Australian companies regarding the role of the independent director and the significance of that role in relationship to the composition of the board of company directors.

Design/methodology/approach

A qualitative study using a grounded research approach was used and 30 directors of Australian public‐listed companies were interviewed.

Findings

The analysis indicates that participating directors were convinced that a majority of non‐executive directors (NEDs) provided a safeguard for a balance of power in the board/management relationship. The difference between NEDs, who are also independent directors, and NEDs who are not independent, was highlighted as an important distinction. The capacity for board members to think independently was seen to be enhanced, but not necessarily ensured, with majority membership of NEDs. However, a majority of independent minds expressing multiple points of view was perceived to reduce the board room hazard of “group think.”

Research limitations/implications

The study was conducted within the context of the preferred model for board composition in Australian public‐listed companies which requires a majority of NEDs.

Originality/value

Conflicting evidence surrounding the claim that a majority of independent members in the board structure contributes to “best pratice governance” makes the paper relevant to governance issues being debated in the global arena.

Citation

McCabe, M. and Nowak, M. (2008), "The independent director on the board of company directors", Managerial Auditing Journal, Vol. 23 No. 6, pp. 545-566. https://doi.org/10.1108/02686900810882101