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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. 

Nicole Copley

Nicole has consulted to the NGO sector since 1993. She is an admitted attorney (non-practising), has her Masters in the tax exemption laws and is a Master Tax Practitioner. Nicole developed her drafting skills while working as a business lawyer, and she has a pragmatic problem-solving approach to all the work she does. Her depth and breadth of experience over many years and her work with government and a wide range of clients, give her useful perspective and insight. Nicole also lectures and trains on various topics of importance to the NGO sector. She is author of ‘NGO Matters: A practical legal guide to starting up’, and publisher of the series of NGO Matters handbooks.

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