Independent Directors

Now more than ever, companies are demanding strong leadership from qualified, intelligent and dedicated “independent” or “outside” directors. In today’s post-Enron era, independent directors are expected to diligently perform a wide variety of tasks, including strategic planning, financial and operations oversight and legal compliance. The Sarbanes-Oxley Act of 2002 and the continuing stream of increasingly expensive shareholder claims against directors and officers confirm that the financial and reputational risks to independent directors have never been greater.

In response to these heightened expectations, some of the most important board responsibilities today include:

  • Monitoring the company’s performance in light of its operating, financial and other significant corporate plans, strategies and objectives, and approving major changes in plans and strategies.
  • Selecting the CEO, setting goals for the CEO and other senior executives, evaluating and establishing their compensation and making changes when appropriate.
  • Developing, approving and implementing succession plans for the CEO and senior executives.
  • Understanding the company’s risk profile and reviewing and overseeing risk management programs.
  • Understanding the company’s financial statements and monitoring the adequacy of its financial and other internal controls as well as its disclosure controls and procedures.
  • Establishing and monitoring effective compliance systems and policies for ethical conduct.

Shrinking company profits and stock price fluctuations can expose independent directors to increased personal liability. As the potential for independent directors to be held personally liable rises, they have a vested interest in making sure their organizations are following the latest corporate governance best practices.

Learn more about corporate governance best practices for independent directors.

Next: Not-for-Profit Board Members