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The Governance Revolution by Deborah Midanek

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Chapter 7 The Rise of Independent/Disinterested Directors

The dramatic shift in board composition toward independent directors and away from insiders and affiliated directors is one of the most important developments in U.S. corporate governance. It may also be among the least understood. In addition to the numerical shift, the independence-in-fact of directors has been buttressed by adoption of various rule-based and structural mechanisms.

By 2004, under the influence of Sarbanes-Oxley and the stock exchange listing rules, the shift was virtually complete: 91 percent of U.S. public companies reported two or fewer insiders; 9 percent reported three insiders. Large public firms have moved to a pattern of one, perhaps two inside directors and an ...

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