In a governance context, absence of or freedom from conflicts of interest that impair objectivity.
Companies that trade publicly in the United States are required to have a majority of independent directors. The New York Stock Exchange defines independence as having “no material relationship with the listed company (either directly or as a partner, shareholder, or officer of an organization that has a relationship with the company).”
A director is not considered independent if the director or a family member:
- has been employed as an executive officer at the company within the last three years
- has earned direct compensation in excess of $120,000 from the company in the last three years
- has been employed as an internal or external auditor of the company in the last three years
- is an executive officer at another company where the listed company’s present executives have served on the compensation committee in the last three years
- is an executive officer at a company whose business with the listed company has been the greater of 2 percent of gross revenues or $1 million within the last three years.