Jeffrey Cohen Speaks On Independent Directors

I agree with the premise that independent directors are necessary and, in many cases, critical to the chapter 11 process. I think the primary problem is that these individuals are often recruited and hired by the very people (and professionals) who are subject to scrutiny in a particular case. It becomes nearly impossible for recidivist directors to be truly independent when they are relying on these parties to hire them again in the next case.

As someone who often represents Committees, I’m repeatedly faced with Debtors claiming that the “independent” director(s) are performing an investigation intended to thwart any efforts by the Committee to do the same. When faced with this dynamic, and since all professionals should properly be focused on maximizing a return to creditors, I’ve wondered how to create an environment where the Committee and independent director(s) could effectively align towards a common goal. Two potential remedies make sense to me: (1) require independent directors to be retained professionals under section 327 and, consequently, require them to be “disinterested” or (2) allow the Committee to select (or jointly select with the Debtor) the independent director(s). Both of these proposals would ensure that the candidates properly exercise their fiduciary duty to creditors and parties in interest, not the targets of an investigation or the professionals employed by such targets.