This article challenges the prevailing emphasis on board independence, arguing that inside directors offer unique advantages to companies. While independent directors are now the majority on boards, empirical studies show no clear link between independence and company performance. The author suggests that inside directors possess a deeper understanding of the company's operations, a stronger commitment to long-term success, and a balanced perspective on decision-making.
Until the 1970s, corporate boards were dominated by inside directors — people employed by or affiliated with the company in some way. As of 2023, Spencer Stuart research found that 85% of directors are independent. The switch came in response to a number of trends, including the distrust of American institutions after Watergate and Vietnam, and SEC rule changes that increased the importance of independent directors.
However, with few exceptions, empirical studies have found no connection between board independence and company performance outcomes Business leaders should reconsider the merits of inside directors, who 1) bring a deeper understanding of the company, its strategy, R&D opportunities, and market competitors; 2) have a deeper stake in the company’s long-term success, as their professional reputations and continued employment depend on it; 3) are less likely to look to the company’s current...
Boardindependence Insidedirectors Companyperformance Strategy Corporategovernance
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