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Abstract

One common theme among the recent string of corporate collapses world-wide (exemplified by the collapse of Enron in 2001) was the close association between members on the board of directors and their external advisers. As a result of this, the centrepiece of recent corporate governance reform programs in jurisdictions across the world has been that directors satisfy the requirement of 'independence'. While the meaning of 'independence' has been the subject of confusion, one thing that is clear is that underlying the requirement for 'independence' is a view that a close connection between the director's self-interest and the interests of the company is a necessarily bad corporate governance practice. Accordingly, a common theme in the various reform programs is a restriction on directors holding shares in the company for which they are on the board. In this article, the authors challenge this position. It is argued that the shift towards more 'independent' directors is a fundamentally bad move, which undermines the rights and powers of minority shareholders and entrenches a second-rate corporate governance model - the separation of ownership and control - in our company law. Rather than suggest cosmetic reform to existing shareholder rights and remedies in an attempt to address the problem, the authors propose that all directors must have a significant interest in the company they serve so that the directors' self-interests and the best interests of the company become inextricably intertwined. It is argued that this is an effective way to tackle the problem of separation of ownership and control head on.

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