Independent Directors

Lucy P. Marcus is an avid blogger and tweets regularly about leadership and corporate governance. In one of her recent blogs, she raised the question of the length of board director tenure. Terming it “You’ve got to know when to go”, Lucy undertakes a simple but critical self evaluation exercise for board directors to determine when to hang up the proverbial boots. She posits that there is a thin line between length of time served on a board and independence of a director. So you join a board as an independent director – meaning that you are neither currently employed by the company nor its subsidiaries or affiliates nor have been recently employed, you are not providing any goods or services or a major customer of the company and that you are not affiliated to a major shareholder through blood, marriage or direct appointment to the board.

As an independent director, your role is to safeguard the interests of the minority shareholders amongst other things and to bring to all board deliberations an external perspective that is for the greater good of the company and not influenced in any way by the motivations of the majority shareholder(s). It bears noting, however, that the longer you stay on a board, the more attuned you become to the views of those around you and your independent dance steps slowly began to fall in line with the very people whose perspective you are supposed to keep in check and aligned to the greater good. Let’s call a spade a spade: no one likes a constant dissenter on his team. It’s quite fine, welcome even, at the beginning, as it is viewed to bring freshness and alternative thinking to regular discourses. However in the long term, where such dissent can become harmful to the board’s harmonious relationship, it can be viewed as destructive as a canker sore is to a singer or a bunion is to an athlete. So the independent director has to find the rightful balance on where to provide the right amount of nonalignment to critical company decisions as well as where to apply the appropriate amount of vigorous inquiry on issues of risk, integrity and governance.

But the question remains, for how long can one remain suitably independent, non-aligned and detached from the whims and agendas of the majority shareholder? Lucy Marcus’ blog cites two examples of independent directors, James D. Robinson at the Coca-Cola board who joined in 1975 (38 years) and Douglas G. Houser at the Nike Board, who joined in 1970 (43 years). First off, any director who has served on a board for more than ten years deserves to be appointed to chair the celebratory Silver, Gold and Diamond Jubilee committees of the respective companies. Their value in picking out themes and pointing out the perfect historical pictures to put in the ubiquitous celebratory journal is undoubtedly indispensable. Secondly, your professional and technical abilities aside, you cannot conceivably remain independent after 10 years, let alone 30 plus years! Referring to Robinson and Houser, Lucy states “ questioning their length of service is not a reflection on their abilities as board members, but rather stating the obvious: It is impossible to remain independent and to serve for that long.”

The human being is a social animal. We learn that to live in harmony, it is imperative that we set some rules of engagement and respect the same vigorously. Company boards are social venues. While they may have a very professional agenda, that agenda is only as successful as the social contracts that exist within the board.

It goes without saying that dysfunctional boards are made up of individuals whose social contracts have expired, exploded or disintegrated. You don’t have to look very far in the Kenyan case. The 2012 abominable board showdowns at the National Hospital Insurance Fund, East African Portland Cement and CMC will be burnt in our collective memory for eons. It therefore takes an inordinate amount of social skills and emotional intelligence to remain appropriately detached and non-aligned as a director while still maintaining a good relationship with the rest of the board. There is no doubt whatsoever, that strong director “independence” will lead to differences of opinion on what is the “greater good” of the company with the majority shareholder(s) and/or their representatives. It is difficult to determine what the optimal differences of opinion should be: too much and the fabric of the board starts to unravel and too few would mean that there is very little challenge being made to the status quo. Staying on a board for more than ten years as an independent director would imply that you have found a way to embed your social contract. You are not a very loud maverick; neither do you caucus quietly with dissenters on the board. You are a safe pair of hands that can be relied on to steady the board in terms of turmoil. You are the poster child of stability and institutional memory and everyone turns to you for sagely snippets of wisdom when a crossroads is reached. Well that’s just great. You are a cornerstone of the organization. But you are no longer independent. You are the favorite uncle, the much-cherished grandparent. You are, quite simply, an adopted relative. Relative-relation-blood-marriage-give-it-a-name. You are one of them.

The UK Corporate Governance Code’s guideline on the tenure of independent directors sets out nine years as best practice. The Kenyan Capital Markets Authority’s Corporate Governance Guidelines published in 2002 are explicit on the definition of an independent director but are silent on what the tenure should be. It is therefore left to individual companies to set out their own director limits. Which brings me to the frog riddle: Five frogs are sitting on a log. Four decide to jump off. How many are left? Five. Because deciding is different than doing. As a 10+ years independent director, don’t just decide about whether it’s time to quit. Just do it.

Carol.musyoka@gmail.com
Twitter: @carolmusyoka