A company’s management system is sometimes a highly complex and confusing mechanism. However, the trend towards reorganisation of existing management systems means that most companies are trying to find or develop the most efficient management system possible. One direction for such changes is the introduction of independent directors into governance structures. Why your company board needs independent directors and why this approach is better than others, we will tell you below.
How is the independent director different from the traditional concept of an executive?
In order to understand the advantages of a management model with an independent director, you should first understand what an independent director is. According to the generally accepted definition, an independent director is a member of the board of directors who is not directly related to the company, does not participate in its executive or any other structures, and does not take an active part in the company’s everyday life.
The principal difference between an independent director and a conventional definition of a company executive is that the independent director is not directly related to the company in which he holds a managerial position. He is not permanently involved in the company’s activities, although his role is quite important. An independent director must have an unbiased view of the current state of affairs in order to draw adequate and realistic conclusions about the state of the company.
According to experts, introducing this type of director to the board is the best management technique available today. In this way, the governing body will always have a fresh outside perspective and take into account the opinion of third parties when making important decisions. In addition, this way it is possible to ensure external control of the director general and board members in order to avoid impropriety or abuse of authority on their part.
Advantages of independent directors
In addition to external expertise, the independent director model offers a number of other benefits. They include:
- Objective assessment of the current situation. When running a business, it is not only important to know your strengths and advantages over your competitors. It is equally important to know about your weaknesses so as not to allow anyone to use them against the company. An independent director can accurately identify problems and their scale – without exaggeration or understatement.
- The ability to discover new opportunities for the company. External specialists will always tell you where you can move forward and what horizons the company and its employees can explore. It is also essential for finding effective solutions to problem situations within the company, if they exist.
- The opportunity to integrate new knowledge and skills into the work of the company. Learning and sharing experience with an independent director can help optimise the company’s operations, discover new technical capabilities and use them for the benefit of all.
- Objectivity during conflicts. An independent director may act not only as an external expert, but also as an objective party to resolve the company’s internal conflicts. Without any personal connections with other members of management or with employees of departments, he will be able to correctly evaluate arguments of the parties and suggest the option, which would be favorable to all.
It is up to everyone to decide whether they want independent directors on the company’s governing bodies. But do not forget that times and ways of doing business change. If you want to stay in the top positions, appreciate the benefits of independent directors.