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Financial Independence for Outside Board

 


日本経済新聞 | August 1, 2019


Russell Reynolds Associates Consultant Yuko Yasuda was interviewed by Nikkei on the changing role played by independent directors. The translated article is excerpted below.

There has been a dramatic increase in the number of independent directors in Japan with the introduction of the Corporate Governance Code in 2015 by the Tokyo Stock Exchange. Proxy advisory firms with an increasing influence on companies through the general meeting of shareholders recommend that companies should have at least two independent directors, or even one-third of directors to be independent directors depending on the type of company.

In light of these developments, there have been cases where one individual serves as an independent director for multiple companies at the same time. However, with the growing awareness of the importance of the role played by the board of directors in corporate governance, the time required for one board of directors meeting held at a listed company is increasing. Three companies are probably the maximum number of concurrent posts one person can serve.

In recent years, there has also been an increase in factory tours by companies for independent directors, interaction between independent directors and senior management, and advance briefings on proposals in order to enable board of directors to know the company better, and to ensure the effectiveness of the board of directors. While this is a positive trend for revitalizing the board of directors, it also means that independent directors are not mere commentators, but instead need to dedicate sufficient time to preparation.

Financial independence is another important thing to consider in light of the increase in the number and influence of independent directors. Due in part to the impact from the abolishment of posts such as advisors and counselors for retired officers, we are seeing more cases of people who want to become independent directors for the financial benefits.

However, is it really possible for someone who has taken this position for financial reasons to properly monitor management from an impartial perspective? The workload for independent directors has steadily increased, and there is a need to increase compensation for people in these positions overall. Meanwhile, it is necessary for companies to closely examine the motivations of independent director candidates in advance to ensure quality.

It is also necessary to conduct assessments of the board of directors to ensure its effectiveness. While our company is a human resources placement company, we also offer services that include independent assessments of the board of directors based on the composition, time, the agenda, and contents of discussion, and the number of requests from companies for these services is gradually increasing. Although some say assessment of the functions of the board of directors should be the role of the chairman, there may be a definite role that an independent perspective can play to indicate to investors that the assessment is not just self-aggrandizement.




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Financial Independence for Outside Board