The Independence of Board of Directors: A Quest for Legitimacy
20 Pages Posted: 12 Nov 2008 Last revised: 18 Nov 2008
Date Written: September 10, 2008
Abstract
This paper proposes that all organizations governed by a board of directors should enhance the legitimacy and credibility of their board.
The issue is not the much-discussed independence of boards, but their legitimacy and credibility. Independence is meaningful only insofar as it reinforces the legitimacy of a board.
Only when legitimate does a board have the authority and the right to oversee the management of an organization.
Only when credible does a board add value to the organization.
The paper argues that in companies with substantial shareholders (i.e. holding more than 10% of common equity), two forms of legitimacy should, could, be represented on the board:
1. the legitimacy flowing from the process of nomonation and election of independent board members; 2. the legitimacy derived from substantial financial commitment to the firm.
The paper makes a series of specific recommendations.
Suggested Citation: Suggested Citation
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