Does the holding of company shares automatically compromise a director's independence? And when is a director no longer independent?
These questions have troubled shareholders, prospective directors, legislators, and researchers for many years. I suggest the answers depend on what one means by the words "independence" and "independent", because there is a world of difference between acting independently (independence of thought and decision) and being independent (no vested interest).
If a director holds no pecuniary interest in the company then it is reasonable to expect them to act independently in their considerations, discussions and decision-making. Things can get a little more complicated when a director holds shares. They are no longer independent (by definition), however they may still act independently. In my experience, there is no hard-and-fast line, beyond which independence is automatically compromised. Some directors with small shareholdings (1–3%) struggle to act independently, whereas others with larger holdings (5–10%) seem to be able to act independently, even though they are not independent.
I would be interested to hear the views of others, particularly behavioural specialists, to debate these questions, and determine whether finding answers actually matters (or not).
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.