The independent non-executive director: Origins, regulation and persistent challenges

Citation(2023) 9(1) JCCL&P 68
Published date15 November 2023
AuthorStoop-Koornhof, H.
Date15 November 2023 68
Senior Lecturer, Commercial Law Department: University of Cape Town
The premise that non-executive directors acting independently from
management is essential to the integrity of the company board has
driven much of the corporate governance agenda for decades. This
is the case, despite conflicting empirical evidence of the value or
contribution of independent non-executives. In addition, the exact
meaning of ‘independence’ in the context of the corporate board
remains opaque, and expectations regarding the role and remit of the
office are far from settled.
This article elaborates on some of these themes. The discussion will
introduce the reader to the salient concepts and offer an overview
of the most prominent discourse and recent developments with
reference to approaches in the United States, the United Kingdom,
the European Union and other jurisdictions. Ultimately, the paper
contributes to the ongoing debate surrounding the efficacy of the
independent non-executive director as a critical oversight mechanism
in good corporate governance and the extent to which regulation
can and should scaffold the office.
Keywords: company law, corporate governance, non-executive
The premise that non-executive directors acting independently from
management is essential to the integrity of the company board has
driven much of the corporate governance agenda for decades, and
LLB(Cum Laude)(Pretoria), LLM (Stellenbosch), PhD(Durham).
(2023) 9(1) JCCL&P 68
© Juta and Company (Pty) Ltd
the view seems to ‘gain momentum after each wave of scandals’.1
In fact, as an ostensible response to agency dilemmas,2 ‘the need
for active, independent boards has become conventional wisdom’3
and (perhaps hyperbolically) those who challenge or oppose the
institution of the independent director risk being labelled ‘heretics’.4
The office has become a staple of corporate governance regimes5
despite conflicting empirical evidence of the value or contribution
of independent non-executives.6 In addition, the exact meaning of
1 A Zattoni & F Cuomo ‘How independent, competent and incentivized should
non-executive directors be? An empirical investigation of good governance codes’
(2010) 21 Br J Manag 63 at 63. For an overview of a series of more recent scandals
where there is evidence that boards failed to see the warning signs see also:
C A Schipani ‘Improving board decisions: The promise of diversity’ (2021) 39
Law & Ineq 295–315.
2 An analysis of the agency dilemma in corporate governance falls outside
of the scope of this article. For a discussion of the salient issues see inter alia
M C Jensen & W H Meckling ‘Theory of the firm: Managerial behavior, agency
costs and ownership structure’ (1976) 3 J Financ Econ 305–360; J Kay ‘Theories
of the firm’ (2018) 25 Int J Econ Bus 11–17; P Ireland ‘Property and contract in
contemporary corporate theory’ (2003) 23 Legal Studies 453–9; W W Bratton
‘The “nexus-of contracts” corporation: A critical appraisal’ (1989) 74 Cornell LR
407–65; B Tricker Corporate Governance: Principles, Policies and Practices 3 ed (2015)
68–70; P M Vasudev ‘Law, economics, and beyond: A case for retheorizing the
businesscorporation’ (2010) 55 McGill Law Journal 743 at 911.
3 The Harvard Law Review Association ‘Beyond “independent” directors: A
functional approach to board independence’ (2006) 119 Harv LRev 1553 at 1553;
S M le Mire ‘Independent directors: partnering expertise with independence’
(2016) 16 J Corp Law Stud 1–37.
4 This is well illustrated by the status quo in the United States, where governance
activists have propagated for boards on which independent directors make up a
‘substantial majority’. U Rodrigues ‘The fetishization of independence’ (2008) 33
J Corp Law Stud 447 at 457. And see generally: G Brown, A Kakabadse &F Morais
The Independent Director in Society Our Current Crisis ofGovernance andWhat todo
About It (2020).
5 See for example in the UK: FRC ‘The UK Corporate Governance Code’ (April
2016) available at
a824-ad76a322873c/UK-Corporate-Governance-Code-April-2016.pdf accessed
on 7 September 2023; in Australia: ASX CG Principles and Recommendations
(2014) 16; and in Institute of Directors Southern Africa ‘King Code IV Report
on Corporate Governance for South Africa 2016’, 1 November 2016, part 5.3,
Recommended Practice 8 available at
IV_Report_-_WebVersion.pdf, accessed on 29 August 2023. See also for example:
O C Aduma ‘Incorporating the independent-director concept into the Nigerian
company law: Challenges and prospects’ (2021) 2 LASJURE 44 at 44; P Hanrahan
& A Hargovan ‘Legislating the concept of the independent company director:
recent Indian reforms seen through Australian eyes’ (2020) 20 Oxford University
Commonwealth Law Journal 86-114.
6 The Harvard Law Review Association op cit note 3 at 1553 where the author gives
an overview of the evidence. See also J Jacques du Plessis, A Hargovan & J Harris
Principles of Contemporary Corporate Governance 4 ed (2018) where the authors
discuss the following conflicting studies: B Fraser Board Governance of Not for Profit
Superannuation Funds (16 February 2017) which concluded that independent
directors would not necessarily deliver improved governance; M-O Fischer &
© Juta and Company (Pty) Ltd

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