The second topic our Contributors take on is the practice of appointing “independent directors” for troubled companies, often on the eve of bankruptcy. We received a wide range of responses from our Contributors with many feeling the process is “at least superficially, if not substantively, flawed” (Albanese). That was not a uniform reaction though and the diversity of our Contributors showed the differing views of the market. Many did not want the actions of a few bad apples to overshadow the essential role independent directors can play in “stabilizing” an uncertain situation (Heimowitz) and for calling out “bullsh*t” if necessary (Lederman). “We need to ensure that the cure is not worse than the problem” (Resnick). For those perceiving abuse, many asked for more disclosure (Heimowitz, Millar), broader input into the selection process (Cohen, Millar) or even possibly a requirement to be “disinterested” under Section 327 (Cohen). Increasing the diversity of board candidates was also suggested as an important part of the solution (Albanese). Many focused on the important role judges play in “providing a number of guardrails” on the conduct of independent directors (Levinson). But some felt “more exacting standard[s] . . . [and] more developed legal criteria” are necessary (Millar). In any event, judges should make sure to listen to the views of holders of the fulcrum security even if the judge is satisfied as to the directors’ independence (Anker). Not everyone has the experience of Judge Schmidt, the former Chief Judge of the Southern District of Texas, who argues that “strong and independent directors [can] guide the debtor-in-possession through its reorganization process.” In the end, we find ourselves coming full circle, focusing on the importance of not only independence in fact but also in appearance. Suffice to say the role of “independent” directors is sure to remain a hot-topic. Here’s what we asked our Contributors:
Much has been said about the role of “independent” directors (see Jared Ellias, here). While some of the criticism is warranted (see Beilinson, here), independent directors can and have been a source of strong governance and needed restructuring expertise. Which narrative resonates with you? How do we get rid of the bad while maintaining the good? What is the role of independent directors in the bankruptcy process? How do we get over the criticism that BK directors are not “disinterested”? Is there something inherently flawed? What specific recommendations would you make to improve the transparency and integrity of the process?