Why is director independence important and how has the definition of director independence changed over time?
Director independence is an interesting development in corporate law. Traditional corporate law doctrines relating to director independence applied to related party transactions. For example, in a building lease, if management or one of the other directors owned the building, the doctrine held that those people with financial interests in the transaction should not take part in decisions relating to the transaction. Director independence was designed to make sure that shareholders are protected in terms of fairness and other facets of the transaction. This concept of independence in the face of perceived or real conflict of interest carries over and mutates into different applications in the corporate context. So, by the time of the Enron and World Com scandals in early 2000, where gigantic corporations were destroyed by accounting fraud, public policy analysts had a slightly different take on the role of independent directors. Since the accounting frauds were either directed by manage
