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Showing posts from December, 2018

Too Much of a Good Thing Is Not Necessarily Better

Starting with the 1992 Cadbury Report in the UK, the emphasis of most codes of best practice has been on ensuring a sufficient number of independent directors on corporate boards. Successive codes of best practice have then attempted to increase the number of independent directors even further. It is then no surprise that Spain's Iberdrola has won successive prizes for its corporate governance. Indeed, nine of Iberdrola's 14 members of its board of directors are independent directors with another three being external directors and the remaining two being executives.


So does having more independent directors on a board always mean better corporate governance? Well, not necessarily. First, the academic literature on the value consequences of board independence – with board independence typically measured by the percentage of independent directors on the board – has found little or no evidence of an effect of board independence on firm performance and value. Still, this literature…