The role of an independent director is important for all companies and not-for-profit organizations alike; however, it is particularly important for private companies where it is not always apparent who has the interests of minority shareholders top of mind.
For a private corporation, an independent director would be a director with no substantial capital invested, contractual obligations, or ties to the business or its principals. They can objectively contribute to the governance process of the company and have the experience and knowledge to evaluate the best interests of the company.
Independent directors provide a part-time pool of expert knowledge at a relatively low cost and can differentiate your company among its competitors.
Here are some of their most important responsibilities:
1. Fulfilling the position of non-executive chair or lead director
2. Chairing or leading such committees as the audit, compensation, governance and nomination committees
3. Being instrumental in setting valuations for share issuance or investment
4. Increasing accountability of management
5. Ensuring there is an opportunity for sound risk management policies
6. Becoming a strategic advantage for the company
7. Representing minority shareholders
8. Creating a process of checks and balances on management and other directors
9. Creating an environment for innovation
10. Becoming instrumental in leading mergers and acquisitions activity. Independent directors should consist of the majority of committee members formed for mergers and acquisitions purposes and be part of discussions related to suitors for acquisition.
All directors have a responsibility to carry out their duties without conflict; however, a special responsibility is placed on independent directors to ensure that all decisions are arrived at in the best interests of the company and all shareholders are treated fairly. Having independent directors allows the company to have best-in-class leadership within your industry vertical.
However, an independent board is not for the thin-skinned, as management in a private company will be held to a higher independent standard – and as a result, management must be confident in their mission and strategy.