Investors seem to agree that, because independent directors are expected to safeguard stakeholders’ interests, the presence of a lead independent director (LID) can boost investment efficiency, especially in firms with weak governance, information asymmetry, and/or low-transparency financial reporting.
Often, appointing a LID arises from the need to balance power and preserve board independence. A common trigger is the combination of chair and CEO roles — a setup that concentrates leadership and can complicate oversight. This arrangement, prevalent in many corporations, raises concerns among investors and regulators about potential conflicts of interest.
In these cases, the LID acts as a counterbalance, chairing independent director sessions, setting agendas, and serving as liaison between the chair/CEO and the board. This fosters management accountability and balanced strategic discussion. About half of US companies (but less than 10% of EU companies) combine the chair and CEO roles, making the LID a critical governance mechanism for investor confidence and regulatory compliance.
Johnson & Johnson, where the roles are combined, uses a LID to safeguard board independence and oversee succession planning. Microsoft, which separates chair and CEO roles, appoints a LID to enhance oversight and manage complex governance matters.
Another prominent scenario involves a CEO-only board, in which the CEO is the sole inside director amid a board of independents. Amazon’s board, under Jeff Bezos’s leadership, exemplifies this dynamic. Bezos served as chair and CEO for many years, with independent directors guiding oversight. The LID role was crucial in balancing founder influence with independent governance, helping to maintain accountability during high-growth phases and complex strategic decisions. In recent years, Amazon’s LID has served as the primary board contact for shareholders to engage with on matters such as the company’s executive compensation program.
Governance practices vary globally, and so does a LID’s scope of responsibilities. In the US, LIDs are common, reflecting both the prevalence of activist investors and the regulatory expectations of increased dialogue and coordination in the midst of market disruptions. Europe, where chair and CEO roles are more often split, sees less need for LIDs, although countries like Germany increasingly recognize their relevance amid growing trends in workforce transformation and governance standards. In Asia-Pacific, the appointment of LIDs is on the rise, aligned with investor demands for more nuanced oversight. In addition, a growing network of small and medium-sized enterprises in each region has experienced increased governance demands in supply chain due diligence, prompting many to formalize roles like LID to enhance leadership accountability without adding complexity.
Beyond structure, LIDs are key in boards facing leadership tensions or conflicts of interest. Their independence helps them mediate disputes, promote cohesion, and address critical issues constructively.
Although LIDs often strengthen oversight, the role isn’t foolproof. Small private boards with limited governance complexity or strong independent chairs may find the role redundant or even counterproductive. In such cases, a clear governance culture and defined delegation of authorities can suffice. We must keep in mind that the Wells Fargo fake accounts scandal, which emerged in 2016, revealed governance failures despite having a designated LID. This reminds us that LIDs must have real authority, clear responsibilities, and be willing and able to drive active engagement.
[For more from the author on this topic, see: “When Are Lead Independent Directors Essential & When Are They Not?”]
