Creditors Hurt When Independent Directors Guide Bankruptcies (1)

Independent directors hired to help companies that are careening into bankruptcy often turn out to be not so neutral and wind up hurting junior creditors.

That’s the counterintuitive finding of an academic paper by three law professors, who concluded that changes are needed in how these late arrivals get chosen for seats on the board.

“It’s hard to take seriously the notion that somebody is able to act without loyalty to the people who hired them for the job,” Jared Ellias, an author of the paper and a law professor at University of California, Hastings, said in a June ...