In Australia, the Australian Stock Exchange recommends that the majority of the board should be independent directors. For example, BHP has 10 independent directors out of 11 directors on board in 2019. However, there has been a lot of debate among scholars about the value of the board of directors, especially for independent or outside directors. Many researchers argue, because of the competition in the product and labor market, the managers’ interests are aligned with the interests of shareholders. Therefore, directors may not necessarily provide extra value to the firm by reducing the potential agency costs. On the other hand, those who believe the board of directors is a key mechanism of corporate governance acknowledge that directors, especially independent directors, monitor managers’ behavior and create value for shareholders.
1. Which argument do you agree with? Why? Please choose one argument you support and discuss the reasons.
2. What are the advantage and disadvantages of having independent directors in public listed companies? Please provide at least two advantages and two disadvantages.
In Australia, the Australian Stock Exchange recommends that the majority of the board should be independent directors. For example, BHP has 10 independent directors out of 11 directors on board in 2019. However, there has been a lot of debate among scholars about the value of the board of directors, especially for independent or outside directors. Many researchers argue, because of the competition in the product and labor market, the managers’ interests are aligned with the interests of shareholders. Therefore, directors may not necessarily provide extra value to the firm by reducing the potential agency costs. On the other hand, those who believe the board of directors is a key mechanism of corporate governance acknowledge that directors, especially independent directors, monitor managers’ behavior and create value for shareholders.
1. Which argument do you agree with? Why? Please choose one argument you support and discuss the reasons.
2. What are the advantage and disadvantages of having independent directors in public listed companies? Please provide at least two advantages and two disadvantages.
