The “New Insiders”: Rethinking Independent Directors’ Tenure

Yaron Nili

Volume 68, Issue 1, 97-158

Director independence is a cornerstone of modern corporate governance. Regulators, scholars, companies, and shareholders have all placed a strong emphasis on director independence as a means to ensure that investors’ interests in their companies are well served. But what makes a director independent? While regulators and stock exchanges have tackled this elusive standard in different ways, the end goal is always the sameensuring that the director is able to exercise truly independent judgment and further the best interests of shareholders. Surprisingly, these regulatory bodies have failed to consider the impact board tenure might have on director independence. This Article seeks to fill this void, highlighting the potential effect director tenure has on director independence. Providing novel empirical data that reveals a significant rise in director tenure over the last decade, the Article then strives to place this trend in the larger context of transformations in board structure.

Specifically, this Article suggests that the trend of increased director tenure reflects a market attempt to push back against the regulatory emphasis on board independence that has forced companies to remove many high ranked executives from the boardroom. This reaction is manifest in the increased prevalence of the “new insider,” a hybrid board member who complies with current independence requirements but at the same time, through longer tenure and other attributes, possesses many of the traits that corporate insiders previously brought to the board table. Coupling this market movement with its potential impact on board independence, this Article then explores the benefits and risks of this new insider model and proposes a potential regulatory solution that would address director tenure without sacrificing the benefits that tenure can provide.

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