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Deconstructing Independent Directors

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“Deconstructing Independent Directors”(*)
María Gutiérrez

Maribel Sáez

Universidad Carlos III de Madrid and ECGI

Universidad Autónoma de Madrid

January 2012

Abstract
In this paper we argue that boards of directors lack the mandate, the incentives and the ability to control insiders, especially in jurisdictions where the main agency problem arises between controlling and minority shareholders. We analyze the problems that render independents an inefficient monitoring device for companies with concentrated ownership structures and conclude that the current focus of the regulators and codes of best practice on empowering independents is ineffective and companies would be better off choosing their board members at liberty. Nevertheless, we also present two different proposals for reform: independents as gatekeepers for the regulator and independents as surrogates of the minority. Both proposals are based on the idea that if independent directors are expected to monitor controlling shareholders their most important characteristic should be accountability rather than mere independence.
JEL Classifications: G32; G34; K22

Keywords: Independent directors, Board of directors, Concentrated ownership,
Monitoring, Corporate Law

(*)The authors wish to thank, Jesus Alfaro, Magda Bianco, Fernando Gómez Pomar and Assaf Hamdani and seminar audiences at AEDE 2010 and SIDE 2011 for many useful comments. The contents of this paper are the sole responsibility of the authors. María Gutiérrez acknowledges the financial support provided by the Ministerio de Ciencia y Tecnología grants 2010/00047/001 and 2011/00093/00. Maribel
Sáez acknowledges the financial support provided by the Ministerio de Ciencia y Tecnología grant DER
2011-25237.

1

SIR DESMOND:-Incidentally, to change the subject completely, Humphrey, the position on your board hasn’t

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