International Perspectives on the Proper Role of the Independent Director: Implications for South African Boards of Directors

Abstract

Today, boards of directors are being examined as never before for their independence, integrity and effectiveness. The belief seems to be that independent directors will strengthen corporate boards by monitoring the actions of management and ensuring that management decisions are made in the best interest of the shareholders. Independent directors are now expected to make a more formal contribution to corporate governance than before. The importance of good governance is emphasized by both the USA and the UK governments’ call for trustees and fund managers to intervene more proactively in the governance of companies, particularly in the light of dramatic examples of corporate failure such as Enron in the US and Parmalat in Italy where shareholder values have evaporated. Companies failed due to accounting scandals and the inability of the board to control a dominant and powerful chief executive officer. It is thus no secret that investors are looking increasingly to the independent directors on boards to be more effective in protecting their interests. This literature study aims to identify international best practice concerning the role of the board and more particularly that of the independent director in ensuring good corporate governance. The study is based on sources which include a large contingent of up to date sources on the subject ranging from newspaper articles, journal articles, various corporate governance codes, company reports and reports on governance such as Cadbury and Higgs.