Yet, as is typical in the Japanese corporate structure, the inside directors
were longtime employees of the company with extensive knowledge and background in finance and accounting.
(121) To understand the drama of national security corporate governance, it helps to focus on the three main character archetypes it introduces: Outside Directors (government representatives), inside directors
(foreign investor representatives), and proxy holders (government representatives).
Masulis and Mobbs (2011), further illustrates that the firms with inside directors
and outside board members perform better than the firms' with inside board members only.
The top three rows report information about directors' roles at firms where they gained experience and show that over a third of experienced directors served as inside directors
(i.e., directors who were also executives or employees) at an acquiring company, while 4.5% of experienced directors were professional directors (i.e., directors whose primary occupation was service on corporate boards).
I predicted, for example, that very few inside directors
would be allowed to sit on boards; that directors' pension plans (remember them?) would realize their long-overdue demise; that meeting fees would be replaced with a simple retainer, augmented with some form of stock ownership; that board self-assessments would become commonplace; that staggered boards would pass from favor; that CEOs would not sit on board committees; that boards would become smaller (in the 12-14 member range); that greater reliance would be placed on board committees as the responsibilities and demands on boards increased; that there would be more women, minority and International members of boards; and that much more time would be devoted to board and committee meetings.
The bank will increase the number of outside directors from two to three, while decreasing the number of inside directors
from four to three.
With these changes, Frankly's board now expands to two independent directors and three inside directors
as defined by the TSX Venture Exchange.
To limit the number of inside directors
, Don Phillips, managing director of research, will voluntarily step down from the board, on Dec.
(7) The ways in which boards are structured to achieve these goals--especially the latter--has been the subject of considerable research, with the distinction between outside and inside directors
being the most commonly examined dimension of board structure.
Wyatt, 1997, "Inside Directors
, Board Effectiveness, and Shareholder Wealth," Journal of Financial Economics 44, 229-250.
Outside directors are less likely to be retained if they are from a firm with CEO duality, and inside directors
are more likely to be replaced if the takeover is disciplinary.
An alternative perspective suggests that inside directors
might provide better strategic direction than outsiders, given their understanding of their firm's operations, customers, and business model (Bruni-Bossio and Sheehan, 2013).