Personal Finance & Money Asked by CoolQ on July 4, 2021
What is understood by "independent" in "independent executive board member" for corporations? According to Wikipedia, for public companies the board is selected with election from the shareholders with voting power. So I guess one meaning of "independent" would be: not a shareholder. Others might include not being socially affiliated to such or other important figures in the organization. I think this term might be defined by some regulatory bodies.
The Wikipedia article you cite actually gives a pretty good overview. An independent director (also known as an outside director) is someone that does not work for the company (i.e. not the CEO, CFO, etc.), is not (and does not represent) a large shareholder, and does not represent another major stakeholder like a labor union or lender.
An independent director can own stock in the company as long as they're not a major stockholder and is free to socialize with whomever he or she chooses.
Correct answer by Justin Cave on July 4, 2021
Independent means that the director was chosen from outside the firm (or another firm with a substantial affiliation), not within. In other words, not an executive or employee of the company or an affiliate.
They can be shareholders, just not significant enough of a shareholder to put their own interests ahead of the company's.
Social affiliation has no bearing on independence, but shareholders may be leery of "independent" directors who have close personal ties with executives and may be seen as a "rubber stamp" for executive decisions.
Answered by D Stanley on July 4, 2021
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