A Call for Stronger Independence Disclosure

A forthcoming study argues that bright-line legal tests for determining director independence are out of date and lead to an overreliance on boards’ discretion. Instead of asking investors to just take boards’ word for it, the study posits that companies should disclose all the factors a board considers in determining the independence of individual directors.

Yaron Nili, an assistant professor at the University of Wisconsin Law School and author of the study, says that as companies’ business ventures have grown more complex, there should be a similar uptick in scrutiny of directors’ independence, but there hasn’t been. He questions whether directors such as Tim Cook, CEO of Apple, should be considered an independent director at Nike, given that Apple and Nike have joined forces to launch the Apple Watch Nike+. Cook has been the lead independent director at Nike since 2016. Similarly, Nili points to published reports describing potential negotiations between Apple and The Walt Disney Company for streaming services. Disney CEO Robert Iger is one of seven independent directors on the Apple board.

“I recognize that there is a lot of value that Tim Cook can bring to Nike, and I’m not saying he shouldn’t be a director there,” says Nili. “But shareholders should be aware or better aware of the conflicts he might have because he’s the CEO of Apple. Should Tim Cook be designated as the lead independent director, which is the highest function of an independent director?”