What is an independent board member and why do we need some?
A crucial component of credible governance is a measure of independence on the boards of organisations. The founding documents of organisations may call for a proportion (often the majority) of the board to be ‘independent’- but what does this mean?
The CIPC online system differentiates between executive and non-executive directors but the Companies Act does not define the difference between even these, and the term ‘independent director’ is used only in a subset of (not relevant to non-profits) Regulations to the Act and the definition there is not at all useful.
The common use of ‘independent’ comes from King IV (which uses both terms- independent and non-executive’). It is also used in the B-BBEE Codes, which require an independent Chair in broad-based schemes.
King IV defines independence as
“the exercise of objective, unfettered judgement. When used as the measure by which to judge the appearance of independence, or to categorise a non-executive member of the governing body or its committees as independent, it means the absence of an interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision-making.”
In other words, ‘independent’ goes further than ‘non-executive’ which just means ‘not a manager of the company’. A person can be non-executive (i.e. not a senior employee of the organisation) but still not be properly independent.
It is important to regularly evaluate the proportion of the board which are independent (using the King IV definition as a yardstick), to ensure that the desired balance is achieved and it is also necessary to, especially in the case of long-serving board members, determine whether they can still properly be classified as independent.