Independent directors: partnering expertise with independence

Abstract

Scepticism about independence as a solution to corporate governance problems is both understandable in view of past failures and valuable as a spur for further thinking about corporate governance reform. This article challenges the sceptics’ accepted wisdom that independence and expertise are mutually exclusive, and explores expertise instead as a useful partner to independence. It develops a theory of expertise for corporate boards that is suited to the board’s role. This theory identifies three types of expertise that should be considered in the board context: domain-specific, firm-specific, and director-craft expertise. It examines the extent to which these are recognised in existing legislation, soft law and cases on the directors’ duty of care and skill and disqualification in Australia and the UK. The article concludes that there is an increasing regulatory focus on expertise but that, as yet, this focus lacks sophistication and coherence.