Does Board "Independence" Destroy Corporate Value?

The Australian Securities Exchange (ASX) Corporate Governance Council (CGC) has required all listed firms to either adopt a majority of "independent" board members without links either to management or to substantial shareholders or explain "if not, why not". While this close to a global standard, it is the opposite to US exchanges who also require "independence from management" but are explicit in stating that significant shareholding need be no barrier to independence. Within a framework of both fixed firm and combined industry-year effects such that each firm is compared with itself, we show that firm performance declines significantly as affected outside directors depart the firm to make way for "Independents". Regular Gray directors make better acquisition decisions, increase the proportion of incentives in CEO pay, and raise dividend payouts. The presence of more executives on the board significantly reduces the CEO’s pay, while combining the role of CEO and chair adds to firm value.