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Corporate Director Independence, Actions and Ethics: A Survey

DOI: 10.5430/afr.v1n1p116

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Abstract:

Recent financial events have raised questions whether social networks between directors and the firm can influence the actions of nominally independent directors. Using data from a national survey conducted in 2006-2007, we use measures based on the informal links between directors and firms to re-examine director independence. We define a board member to be independent if they did not know the CEO prior to becoming a director, was not nominated by a firm insider, and was not previously affiliated with the company. We find that the independent directors so defined are more likely to hold the CEO responsible for poor performance and less likely to receive much of their compensation from the directorship. They are also as likely as insider directors to express a concern about corporate citizenship and CEO ethical misconduct. Our survey shows that unmeasured networks between boards and management have an important bearing on the board’s operation.

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