The importance of board independence

Although the attributed importance of board independence is high, a clear definition of independence does not exist. Furthermore, the aim and consequences of independence are the subject of discussion and empirical evidence about the impact of independence is weak and disputable. Despite this lack of a clear definition, aim and consequences of independence, the focus of corporate governance reforms is on independence. For that reason, this book focuses on the question whether the attention paid to board independence is overrated. It approaches the subject from an economic, legal and behavioural perspective. The economic part gives a literature review on studies that have focused on the relationship between independence and performance. Additionally, these prior studies are aggregated by means of a meta-analysis, which shows statistically a significant negative relationship between independence and performance. The legal part compares the legal frameworks with respect to independence in the United Kingdom, the Netherlands and Sweden. It identifies three building blocks of independence - person, composition/structure and preconditions - which must be well designed in order to have truly independent supervision. The behavioural part addresses the cultural aspects of independence, the impact of social relationships on independence, and groupthink theory. Finally, this book provides conclusions about the importance, definition, aim and consequences of independence together with twelve recommendations