Independent director

An independent director is a member of the board of directors who is not an employee of the organization. The concept is of most importance for publicly-held companies, since stock exchange rules mandate that the majority of all directors be independent. Independence is considered to be important because these individuals are less likely to be influenced by the management team, and so can offer unbiased opinions in their roles as directors. Having a large proportion of independent directors is considered favorable for shareholders.

An individual is considered to be independent if he has not worked for the company within the past few years, is not related to anyone working for the company, and has not been paid by the company for other services than his board participation. The only pecuniary interest that an independent director should have in a business is the periodic fees paid for attending board meetings.

An independent director is also known as an outside director.

Related Courses

CFO Guidebook 
Public Company Accounting and Finance