The requirement for an independent director on the board of directors of a company arises from the need for a director who can make unbiased decisions for the sole benefit of the company.
In addition, in Europe for example, the “Anti-Tax Avoidance Directive III” or “ATAD III” recommends companies to prove that their companies are not shell entities with fake directors. Luxembourg authorities already insist on this need to have true independent directors on companies’ management board.
Choosing an independent director with business experience will definitely help you to maintain stability to achieve your business goals.
The independent director is meant to uphold the best interests of the shareholders, employees, and the entire company.
Who is an independent director?
An independent director is not your lawyer or your chartered accountant who manages your accounting.
An independent director is a member of a board of directors of a company who does not have a material or pecuniary relationship with the company but is nominated to provide professional and independent views solely for the best interest of the company.
Appointing an independent director as part of the board of directors means there is someone on the board of directors who isn’t biased and can act entirely in the best interest of the company.
Below are the main reasons why every board needs an independent director.
Impartiality & Expertise
Since the independent director does not have a material relationship with the company, he/she is not subject to unnecessary influence from the management team, thus, this can allow the independent director to be more impartial and objective.
Also, appointing an independent director normally results in greater third-party advice and expertise given their skills and knowledge in core areas.
Independent directors can offer focus
In start-ups, it is common to have board members whose attention is split between several companies they have a vested interest. It is possible that these members are subject to several variables that may affect their level of engagement or commitment. In such cases, an independent director can offer focus and depth of perspective to the company.
Needed skills and experience
With many independent directors with different skillset available, the company has several options to choose from. The company can engage individuals with expertise in a particular area on which the company wants to focus on.
By bringing in an independent director with specific expertise, the company can utilize growth opportunities and potentially avoid costly mistakes.
Independent directors are the key to conflict resolution
In every board, it’s practically a guarantee that there’ll be conflicts of interest. And in most cases, when these situations arise, independent directors can help resolve the problem. They prevent board members from making decisions in the interest of themselves and ensure that all movements and transactions occur with the company in mind.
Even if the outside director strongly supports one of the beliefs, since they are close to both sides, they are in a particular position to cut through to the main issues and find agreement much faster.
Independent directors bring a unique perspective
An independent director is not linked to business traditions and is free to examine the business with transparency and objectivity, even at the risk of challenging assumptions about what is good for the company. More often than not, the experience and contacts an independent director bring to a company are a value-added resource.
Also, Independent directors may be necessary in helping the board in the recruitment of new executive employees.
Introducing an independent director to the board is one of the best management strategies available today. In this way, the governing body will always have a fresh external perspective and take into account the opinion of third parties when making crucial decisions.
Do you find yourself in need of an independent director for your company? Let’s go ahead and contact your Damalion expert now and let us help.
