What defines the independence of a non-executive director?

The independence of a non-executive director is fundamentally defined by the absence of conflicting relationships. For a non-executive director to be considered independent, they must not have any significant connections to the company that could influence their judgment or decisions. This means they should not have financial ties, familial relationships, or any other affiliations that may compromise their ability to act in the best interests of the shareholders and the organization.

This standard is crucial for maintaining objectivity and impartiality, thereby supporting effective governance. When non-executive directors are free from conflicts, they can provide unbiased oversight, challenge management, and contribute to strategic decision-making without undue influence from external factors.

In contrast, voting power on the board, serving on only one board, or the length of service are not definitive indicators of independence. A non-executive director may have voting rights, but this does not necessarily influence their independence if they have conflicting interests. Similarly, a director could serve on one or multiple boards while still having relationships that undermine their independence, and length of service alone does not determine whether a director can maintain an unbiased perspective.