Services at the Australian School of Business, demonstrates a strong

causal link between board independence and increased value for

shareholders. But there is a potential pitfall in the way board members

are chosen. Masulis and co-author Lixiong Guo find that social

connections between CEOs and non-executive directors can undermine board

independence. “I would encourage corporate boards to voluntarily adopt a

fully independent nominating committee, and if they are lacking a

nominating committee, to establish one,” says Masulis.