Independent director.
In plain English
An independent director is a board member who is not an employee, not a close relative of one, and not tied to the company through significant business dealings. Stock exchange listing standards require a majority of independent directors on most listed boards, and full independence on the audit, compensation, and nominating committees. The reasoning is structural: someone whose paycheck, consulting income, or family relationship depends on the chief executive is a weak check on that chief executive. Boards must assess and disclose each director's independence.
01Why it matters
Independence largely determines whether hard questions get asked in the boardroom, which is why the share of independent directors is one of the first things governance analysts look at.
02The math, step by step
A board of 9 with 7 independent directors leaves management two allies in the room. A board of 9 with only 4 independent members leaves the majority tied to the executives being overseen.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Being off the payroll is not enough. A former executive, a major supplier, a large consulting counterparty, or a relative of the chief executive can all sit on a board without being independent. The test is whether a relationship could reasonably interfere with judgment.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice