Independence

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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.

Links

ACCA: Independence as a concept in corporate governance