The Importance of Corporate Governance

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The need for clarification on the board requirements for a majority of independent directors as it relates to corporate governance is of great importance and would be discussed in this write up.
According to Shleifer and Vishny (1997), corporate governance is the system, by which corporations are directed and controlled. On the other hand, an independent director is a person that has at no time, worked for the company nor owned shares in the company. This director also would not be related to any of the key employees nor would have worked for any major supplier, customer or service providers, such as consultants, accountants, lawyers, etc.
In principle, as retrieved from Wikipedia, “an Independent director, is a director of a board of directors, who would not have a material or pecuniary relationship with the company or related persons, except sitting fees”. It is the duty of the independent director to ensure that the board is active, effective and performing well. It is also his duty to ensure that the CEO is executing his duty in line with the aims, mission and vision of the company, in accordance with the directives of the board.
The importance of independent directors’ roles cannot be over emphasized and the major role being improving the performance of the board and the company as a whole. These roles, however are constrained by various factors, the two most prominent, being the information that is available to the independent directors, and the position / size of the company affected by transitions / life cycle of the company and any significant changes the company may be experiencing. Having mentioned the need for an independent director, specific board positions should be held by independent directors (e.g. Chairma...

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...ive Regulatory System for Australia‟s Small Corporations: Governance for Small Business‟. Melbourne, Victoria Law School. ISBN 978-1-86272-692-5

Australian Corporations and Securities Legislation. (2011) ASIC Act 2001. Sydney, CCH.
Banks G. (2006) Reducing the Regulatory Burden: the way forward. Inaugural Public Lecture, Monash Centre for Regulatory Studies. Melbourne. 17 May. www.pc.gov.au

Joshua, K. (2007). The Board of Directors Responsibility, Role, and Structure. Retrieved from: http://www.eiilmuniversity.ac.in/coursepack/Commerce/CORPORATE_GOVERNANCE.pdf Nicholson, GJ & Kiel, GC 2007, ‘Can directors impact performance? A case-based test of the three theories of corporate governance’, Corporate Governance: An international
Overview of the regulatory and corporate governance framework, http://www.pc.gov.au/__data/assets/pdf_file/0007/93598/08-chapter5.pdf

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