Board members are independent but are they legitimate and credible?
That boards should be made up of a majority of independent members, that goal has been achieved in almost every type of organization. While this achievement did undoubtedly raise the quality of governance, it turned out that «independent boards» were not the cure-all medicine that some anticipated.
Already in 2008 in a policy paper on that topic, IGOPP predicted that the concept of directors’ independence would not yield the expected results and would prove disappointing in many respects. That policy paper suggested that the concepts of legitimacy and credibility were far superior to the concept of independence in driving the performance of organizations. For IGOPP, independence – a director’s lack of any personal interests contrary to those of the company – was but a necessary condition for legitimacy.
Events since, in particular the financial crisis of 2008, have backed up the position taken by IGOPP at the time and have generated new legitimacy issues such as the diversity of boards, the representation on boards of stakeholders other than shareholders, the right, contingent upon a minimum holding period, to nominate candidates for the board, age and tenure limits for board membership.
As for board’s credibility, the 2008 policy paper proposed that it hinged on “its experience and expertise relevant to the specific issues and challenges of the organization”, on its in-depth knowledge “of the company’s business model and its drivers of economic and social value” (Allaire, 2008). For IGOPP, credibility also entails integrity and mutual trust between management and board members. Therefore, this credibility was so important that it would be acceptable, and even necessary, to trade-off some independence if this was the price to pay for raising the board’s credibility.
IGOPP’s position in 2018 offers some clarification and tackles some of the new issues which have arisen since 2008.
Thus this policy paper proposes a fundamental change in governance with respect to board evaluation, member selection and profile of expertise sought for the board.