When many members of a board have close social or financial ties with the CEO — for example, if they're executives who work for the company — it may be difficult or unlikely for the board to challenge the CEO's authority. And when a board is aligned so thoroughly with the goals of management, it may be less likely to focus on protecting
shareholder
interests. Furthermore, some argue that business ties to the company may result in a conflict of interest— for example, if a director is an executive of a firm that is seeking a contract to do business with the company.
This is why independent directors — directors without personal or financial relationships that could compromise their decisions — are considered so important in the boardroom. So regulators have passed rules that encourage boards to include more independent directors, to apply more stringent definitions of independence, and to give those directors a greater role.
