I was asked the question the other day as to whether ….
“by being an NED is the director not automatically independent?”
No, being a Non-Executive Director (NED) does NOT define independence.
Being a NED defines being non-executive.
Therefore a NED can be independent or non-independent as a director on the Board.
Therefore, what are the conditions for Independence of a NED?
The Chairman should meet these criteria on appointment. The Chairman is not “tested” for independence thereafter and is not considered independent by virtue of the role.
The checks for independence include –
- Independent in character and judgement
- Whether there are relationships or circumstances which are likely to, or could appear to, affect judgement
These are listed in the Code within the following generic sections (as defined by by Genius Methods) :-
- Working Relationship
- Service Term
At Genius Methods we believe that there are a number of related associations that are not directly or clearly specified in the Code. For completeness we have added additional items to our checklist in a final section. See FREE assessment access below
The Board needs to state the reasons that independence is believed to exist when on initial review there appears to be a relationship.
The Code recommends at least half the Board should be independent NED’s for a FTSE 350 company. For other listed companies the Code recommends that there should be at least two independent non-executive directors.
The FSA requires, for financial services companies, that one of the independent NED’s is defined as the Senior Independent Director (SID).
Be aware that the Code, and therefore Best Practice, is on a “comply or explain” basis – there are many companies that are currently in the “explain” category.
FREE ASSESSMENT OFFER
Genius Methods would like to offer you the opportunity to test the independence of your NED’s.
Access to NED Independence Assessement – click on this link and provide the Director’s (or code name that is meaningful to you), company name, and a valid email address so that we can send you the access email with the URL, Login ID and password.
Complete the assessment for one non-executive director.
If you wish to test more than one NED, access the link again and use another director’s name.