When would a non-executive director (NED) not be considered independent?

A non-executive director (NED) is considered independent if they can make decisions that are in the best interest of the company without any conflicts of interest. Serving as a recent employee can create a potential conflict between what is best for the company and what may serve personal interests, especially if the NED's perspective is influenced by their recent employment experience, relationships with former colleagues, or understanding of internal company politics. This proximity to the organization can impair their objectivity.

Serving on the board for less than five years does not inherently compromise a NED's independence; the duration alone does not imply a conflict of interest or a lack of objectivity. Family ties with the CEO, while concerning for independence, might not automatically disqualify someone depending on various contexts, and representing a significant shareholder does complicate the independence status as it can lead to biases toward that shareholder’s interests. Hence, having been a recent employee is a clear indicator of a potential lack of independence due to the closeness in relationship and the risk of divided loyalties.