Board Independence and Internal Committees: Evidence from the BRICs

Globalisation is significantly modifying the ways companies compete in international markets. Nowadays competition is also played in relation to corporate governance, especially for the firms of emerging countries, which need the trust of foreign investors and other stakeholders in order to develop successful long-term relationships. Brazil, Russia, India and China – also known as the BRICs – have progressively strengthened their national laws and regulations on corporate governance, by adopting principles and rules that have characterised the old industrialised countries for nearly two decades. This paper investigates the existence and role of non-executive directors and independent directors in the boards of a sample of BRIC listed companies. In particular, the paper is focalised on the supporting and controlling functions such directors should carry out as members of internal committees. In this regard, the international best practices recommend the establishment of a nomination committee, a remuneration committee and an audit committee, as well as any other committee that should facilitate and improve the functioning of the board of directors (or the supervisory board). The research starts with the analysis of the provisions on board composition and members’ independence in each BRIC; then, we consider the rules concerning the internal committees. After the review of the legal framework, the research assumes an empirical approach, by means of an investigation covering 100 BRIC listed companies. Differences emerge among firms and the four BRICs; however, the largest BRIC companies seem to make efforts to approach the international best practices of corporate governance, in order to fill the gap with the old industrialised countries and to reach a leading position in global markets.