The role of the Senior Independent Director

When it matters (and what to do)

A guide by The Zygos Partnership and Legal & General Investment Management.

The Senior Independent Director (SID) burst into the Corporate Governance world with the Higgs Review of the UK Combined Code in January 2003. In the wake of the high profile failures of Marconi and Equitable Life, Higgs suggested that the role of the SID was important in the relationship between major shareholders and the board, stating that “The senior independent director should be available to shareholders, if they have reason for concern that contact through the normal channels of chairman or chief executive has failed to resolve.”

Fourteen years on, the role of the SID is well established and widely accepted, but it did cause some controversy when it was first proposed. There was a grave concern that it would make governance more cumbersome and weaken the role of the Chairman, but the newborn SID first appeared in the revised version of the Code brought out in July 2003.

Today, the SID is an established feature of UK Corporate Governance. However, there could be said to be a whiff of the awkward teenager about it. The role is not always well understood, even by those asked to undertake it, and expectations are less clear than in the case of the Chairman or Committee Chairman.

“The role and importance of the Senior Independent Director has grown enormously. Shareholders really value this safety valve and not just in extreme situations. Best practice is still evolving and examples exist where early planning and a clear job description would have helped companies in tough situations. Through LGIM and Zygos’ different experiences, this guide is meant to help SIDs and Boards define the role and continue to evolve best practice.”

Sacha Sadan, Director of Corporate Governance, Legal & General Investment Management

What follows is a snapshot of the SID at 14, and an attempt to both capture best practice and give some guidance on what the role has become at its best. It is based on numerous conversations with SIDs themselves, as well as on our experiences of dealing with them in sometimes testing circumstances. In the past 14 years we have witnessed and benefited from the value of a number of effective SIDs, and we are sincerely grateful to them.