Director Independence

In brief: Directors are fiduciaries on behalf of the corporation and its owners (or, in a nonprofit organization, its beneficiaries). As fiduciaries, they must be free from conflicts of interest when they make decisions, recusing themselves if they have a conflict. However, in some situations, avoiding a conflict of interest is not enough; the director must also be considered “independent.” Director independence is defined variously, depending on the context.

This memo sets forth the most common definitions of director and board independence in public companies, investment companies, and nonprofit organizations.