The ASX Governance Council and “independent” boards

Abstract

This article represents a discussion of some important issues concerning so-called “independent” directors of large publicly traded corporations. Importantly, it draws on the findings of a recent comprehensive study by Peter Swan and David Forsberg on the effects of regulatory policy changes mandating aspects of the structure of corporate boards in Australia over the period 2001–12. This is the first time that the impact of the Australian rules has been addressed in such a manner. The Australian rules as promulgated by the Australian Security Exchange's Corporate Governance Council closely resemble those adopted in the UK and most other countries excluding the USA. These rules are peculiar in that they aim to ensure that the role of both incentivised and knowledgeable directors on boards is minimised. Such rules can leave minority shareholders exposed to management that is unchecked by adequate monitoring. Particularly relating to the application of such rules to banks and insurance companies, recent evidence shows that they have helped to promote the onset and severity of financial crises such as the global financial crisis by degrading governance standards. Thus evidence suggests that financial regulators are part of the problem, not the solution, to attaining global governance rules that promote successful outcomes and financial stability.