Tag Archives: Enron

The Lead Independent Director

Steve McClure
Steve McClure

The lead independent director role emerged in US public companies after legislation responded to flagrant mismanagement within the former Enron Corporation.  The Sarbanes-Oxley Act requires that independent directors meet apart from those who are not independent.  The lead independent director serves as chair in such meetings.  The role and separate meeting process is particularly valuable for balancing the interests of the shareholders and management when the company CEO is also the Chair of the Board.

Legislation is not a factor, yet we see lead independent directors emerge in private family companies. Independent directors on family business boards balance not just the interests of shareholders and management, but also the interests of different family branches, and the board and family or non-family management.  It’s much more complicated in a family business and often hard to be clear about what is going on between family members.  A lead independent director can help the other independents coordinate with each other, navigate the family politics and assemble to compare their perspectives when needed, separate from the rest of the board.  The lead independent will coordinate and serve as the spokesperson when there is value in communicating a single message from the independents to the family.

In that many family CEOs transition to the role of Chair of the Board as a natural progression toward retirement, there is another opportunity for lead independent directors.   By playing an active and visible role during agenda creation and by facilitating sensitive board discussions, lead independent directors can serve the business and family by maintaining real and perceived fair representation from all factions, and thus promote trust within the family.  Savvy family member Board Chairs promote these benefits when they willingly share some of their traditional duties with a lead independent director.  Savvy lead independent directors assist the family Chair without ever sacrificing their real or perceived independence from the Chair.

The lead independent role tends to informally emerge within family company boards, yet it may also occur by design when particular leadership qualities are sought during independent director recruitment.