OUTSIDE DIRECTORS: WHY CORPORATE BOARDS HIRE THEM

Why do companies hire outside directors? For publicly traded corporations and many large private companies, having an effective board of directors is crucial for upholding robust governance and oversight. Outside directors notwithstanding, while boards are traditionally comprised of internal executive leadership and potentially founders or major investors, most also strategically recruit independents to provide impartial guidance and accountability.

Hiring outside directors to join corporate boards offers several key benefits that companies value tremendously:

Independent Oversight and Objectivity
As external parties with no operational responsibilities or direct financial ties beyond their board service, independent directors can analyze situations through an unbiased lens without blind loyalty or ulterior motives. This objectivity enables them to objectively evaluate performance, confront tough issues head-on, and hold leadership’s feet to the fire in ways insiders may struggle with. Their separation from internal politics and dynamics promotes stronger transparency and accountability.

Diverse Expertise and Fresh Perspectives
Experienced outside directors are purposefully recruited to introduce new ways of thinking that can challenge groupthink or insular mindsets within an organization. Companies aim to construct a multidisciplinary brain trust by onboarding accomplished professionals with specialized expertise across functions like finance, risk, marketing, technology, operations, public policy and more. These diverse skill sets and alternative viewpoints can illuminate blind spots and unlock creative solutions that may have been missed internally.

Credibility and Professional Networks
Prominent independent board members immediately elevate a company’s brand reputation and credibility through their distinguished careers and respected profiles. Having renowned former executives, academics, public figures, or industry thought leaders willing to attach their names and advocate for an organization signals trust and confidence to investors, stakeholders, and the public. Board service also connects companies to these individuals’ invaluable professional networks and relationships.

Regulatory Compliance and Best Practices
For publicly traded companies, stock exchange listing requirements mandate a certain number of independent outside directors to prioritize shareholder interests and uphold governance best practices. Even private corporations recognize the value of willing external oversight to implement robust accounting controls, ethical standards, risk management protocols and more. Independent directors demonstrate commitment to transparency and adhering to regulatory obligations.

Executive Coaching and Mentorship
While primarily responsible for oversight, accomplished outside directors often take on coaching and advisory roles to support and develop leadership teams, especially at growth-stage companies. By sharing hard-won experiences and wisdom, they provide unique mentorship opportunities that can accelerate professional development of internal executives navigating new challenges as the business scales.

By carefully selecting and empowering fiercely independent outside directors, companies gain impartial stewardship, multidisciplinary perspectives, credibility building and leadership development that internal-only boards cannot match. For stakeholder confidence and long-term sustainable success, this external oversight proves invaluable.