A critical discussion of the effectiveness of independent directors in monitoring and disciplining the senior executives in the UK and the US

Essay from the year 2019 in the subject Law - Civil / Private, Trade, Anti Trust Law, Business Law, grade: A, University of Edinburgh (Edinburgh Law School), course: Comparative Corporate Governance, language: English, abstract: Independent (non-executive) directors have long been regarded as an essential corporate governance instrument in monitoring and disciplining the senior executives of listed companies, both in the UK and the US. However, large corporate scandals and the global financial crisis at the beginning of the 21st century have shown that independent directors have not entirely met the high expectations placed on them. Doubts about their effectiveness in holding the management to account have arisen. On this occasion, this essay critically discusses the effectiveness of independent directors in monitoring and disciplining the senior executives in the UK and the US. By exploring the role of independent directors, particular attention is paid to the limitations of the current governance systems from a legal and practical point of view. It becomes clear that many of the shortcomings attributed to the concept of director independence have arisen precisely from the requirement to have a majority of independent directors on the board. The essay also presents proposals to improve the effectiveness of independent directors. The essay is structured as follows. Section 2 explores the origins of independent directors in the UK and the US and answers the question why managers need to be monitored by (independent) directors. Section 3 then outlines the different standards and definitions of independence in the UK and US corporate governance systems. Subsequently, section 4 goes into more detail on the monitoring role of independent directors while stating the key components for effectiveness. Section 5 critically discusses the main limitations of independent directors in monitoring and disciplining the senior executives, followed by a series of proposals to improve their effectiveness. Section 6 concludes.

Thomas Böhm ist ein deutscher Jurist und Rechtsanwalt. Während seines Studiums der Rechtswissenschaften an der Universität Passau spezialisierte er sich auf die Rechtsgebiete Kapitalgesellschaftsrecht, Wertpapier- und Kapitalmarktrecht sowie Internationales Privat- und Verfahrensrecht. Nach erfolgreichem Abschluss des Rechtsreferendariats im Oberlandesgerichtsbezirk Nürnberg arbeitete er mehrere Jahre als Rechtsanwalt in einer internationalen Großkanzlei. Dort beriet er schwerpunktmäßig nationale und internationale Investoren, Fonds und Unternehmen im Rahmen von Immobilientransaktionen, Mergers & Acquisitions sowie im Bereich des gewerblichen Mietrechts. Thomas Böhm absolvierte ein Master of Laws (LL.M.) Studium an der University of Edinburgh im Schwerpunkt Corporate Law. Hierbei beschäftigte er sich eingehend mit dem Englischen Gesellschaftsrecht sowie dessen Ökonomie, Corporate Governance, Europäisches Arbeitsrecht sowie Internationales Handelsrecht. Derzeit arbeitet Thomas Böhm als Rechtsanwalt in einer international ausgerichteten Wirtschaftskanzlei im Bereich Gesellschaftsrecht / M&A. Thomas Böhm is a German corporate lawyer. During his law studies at the University of Passau, he specialized in the fields of corporate law, securities and capital markets law as well as international private and procedural law. After successfully completing his legal clerkship at the Higher Regional Court of Nuremberg, he worked for several years as a corporate lawyer in a major international law firm. His practice focused on advising national and international investors, funds and companies on real estate transactions, mergers & acquisitions and commercial tenancy law. Thomas Böhm graduated with a Master of Laws (LL.M.) degree in corporate law at the University of Edinburgh. He focused on UK company law, corporation law and economics, corporate governance, European labour law and international trade law. Currently Thomas Böhm works as a corporate lawyer in an internationally oriented commercial law firm in the field of corporate law / M&A.