Are independent directors good monitors of public utilities? Evidence from Europe

Recently introduced corporate governance codes and guidelines in Europe have emphasized the importance of appointing independent directors to lead organizations’ boards. Many commentators and institutional investors believe that independent directors are particularly effective in controlling the actions of CEOs by pushing them to make decisions to improve firm performance and firm growth. This issue is especially relevant in the public utility industry where the maximization of profit is only one of many interests that must be satisfied. Using a unique financial and governance dataset from European public utilities, we studied whether the presence of independent directors and other board variables correlates with firm performance and firm growth. We found evidence that independent directors do not influence present and future firm performance, and firm growth. Executive directors impact positively both present and future firm performance. Our results challenge corporate governance codes’ conventional wisdom that a larger number of independents in board composition improves firm results.