The downside of independent boards

Beware if your CEO is the only insider on an independent board. It can lead to poor financial performance, exorbitant CEO pay, and more financial fraud. This is according to a paper by Associate Professor of Management Christine Shropshire and her co-authors.

Corporate boards on which the only insider is the CEO have become popular over the past few years. But there’s a problem with that kind of board independence: A new study by Christine Shropshire and her research associates found it’s linked to a number of issues.

In this article published online in The Wall Street Journal on May 16, 2017, and appearing in the print edition on May 17, 2017:

The conventional wisdom couldn’t be clearer: The more independent a company’s board is, the better. The presence of any company employees, other than perhaps the company’s CEO, can only bring trouble.

The conventional wisdom couldn’t be more wrong: Boards that are too independent invite trouble. According to our research, it can lead to lower profits, excessive CEO pay, and more financial fraud.

In other words, when it comes to the independence of corporate boards, there can be too much of a good thing.