Business Daily Media


Business News

Independent isn't necessarily better. Why appointing independent directors can achieve little

Independent isn't necessarily better. Why appointing independent directors can achieve little

An insurance company has been ripping off its clients. A bank has been lending without properly assessing ability to repay. Trustees of a super fund have been putting the interests of its owner ahead of those of the members they are sworn to protect.

All of these real-world examples from the Financial Services Royal Commission invite the suggestion that the firms would behave better if they had more independent directors.

But independent directors aren’t necessarily better. Indeed our own research, now published in the Journal of Business Ethics[1], finds that the directors who have sailed closest to the wind in their previous corporate lives are the most sought after.

What we found

We examined the records of 1,714 companies that made up the US Standard and Poor’s index between 2000 and 2011 to determine what had happened to the executives and directors of those that had engaged in the most aggressive forms of tax avoidance.

We found they had better chances of being invited to join other boards[2] than the directors of firms that had not.

Read more: Experienced shareholders better than independent directors for business[3]

We also examined the kind of tax strategies that paid off the most. Independent directors benefited from having been on the board of a firm that had adopted any kind of tax strategy, whether aggressive or not. Executive directors (directors employed by the firm) benefited only if the tax strategy was aggressive. Chief executives benefited only if the tax strategy was routine.

Until now, the reputational effects of corporate tax avoidance on directors and executives have been unknown. Indeed, previous studies suggested that aggressive tax minimisation might harm the reputation of those who presided over it[4].

Two views about tax

One view, shared by protesters who took to the streets in 2015[5], is that corporations should pay their “fair share”. Any attempt to dodge tax is seen as dodging social responsibility.

The competing view is that a corporation’s goal is to maximise profit. Any director or executive who achieves this is helping the firm (as would any director or executive who minimised insurance payouts or maximised the flow of superannuation returns to the corporation rather than to the member in whose name they were earned).

Read more: Revealing how much tax companies pay doesn't move markets or reduce tax avoidance[6]

Our findings provide support for the second view. Insofar as other corporations are concerned, candidates who have been directors and executives of tax-aggressive corporations are regarded as highly suitable for filling board seats.

Are our independents like those in the US?

It isn’t clear whether the Australian market for independent directors works like the one in the United States. It’s a good subject for future research.

If it does, appointing more independent directors might do less to change Australian corporate culture than is commonly imagined.

Authors: Roman Lanis, Associate Professor, Accounting, University of Technology Sydney

Read more http://theconversation.com/independent-isnt-necessarily-better-why-appointing-independent-directors-can-achieve-little-103092

Business Daily Media Business Development

iPhone Security Issues: How you can Secure your Device

A common belief is that iPhones are much more secure than Android devices. The truth, however, is that iPhone vulnerabilities exist and are not negligible. Android is known as the malwar...

TheTechFools.com - avatar TheTechFools.com

When A Forex Trader Should Make Use Of Free Forex Signals Telegram

Both experienced and new traders make use of the Free Forex Signals Telegram to optimize their profits. Beginners will find the signals important since it is easy to get overwhelmed by the t...

News Co Media - avatar News Co Media

Fed up dealing with bad bosses and being over-looked for promotions? So was Victoria Wright

Author, Victoria Wright, used all of her good and bad experiences to find other income and career opportunities, and she has revealed all in her debut non-fiction book, ‘I’m Too Old ...

Tess Sanders Lazarus - avatar Tess Sanders Lazarus

Tripadvisor Plus offers

A New Way to Reach Travelers: Tripadvisor Enables Hotels to Participate Directly in Travel Membership Program for First Time   As summer booking demand grows, Tripadvisor Plus offers acco...

TripAdvisor - avatar TripAdvisor

Writers Wanted



News Co Media

Content & Technology Connecting Global Audiences

More Information - Less Opinion