The Importance of Board Independence (IVOR nr. 90) 2012/7.2.4.1:7.2.4.1 Independence criteria

The Importance of Board Independence (IVOR nr. 90) 2012/7.2.4.1

7.2.4.1 Independence criteria

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

Section B of the UK Corporate Governance Code addresses effectiveness and subsection B1 discusses the composition of the board. The accompanying main principle comprises: ‘The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively.’ Independence is part of the main principle and the supporting principle elaborates on independence by stating that ‘The board should include an appropriate combination of executive directors and [NEDs] (and, in particular, independent [NEDs]) such that no individual or small group of individuals can dominate the board’s decision taking.’ In order to determine whether the NEDs are independent, code provision B.1.1 provides the following:

‘The board should identify in the annual report each non-executive director it considers to be independent. The board should determine whether the director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director’s judgement. The board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including if the director:

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has been an employee of the company or group within the last five years;

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has, or has had within the last three years, a material business relationship with the company either directly, or as a partner, shareholder, director or senior employee of a body that has such a relationship with the company;

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has received or receives additional remuneration from the company apart from a director ’s fee, participates in the company’s share option or a performance-related pay scheme, or is a member of the company’s pension scheme;

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has close family ties with any of the company ’s advisers, directors or senior employees;

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holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;

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represents a significant shareholder;

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has served on the board for more than nine years from the date of their first election. ’

The UKCGC mentions explicitly that the board should determine whether the NED is independent in character and judgement and whether there are circumstances or relationships that affect his independence or judgement. This code provision offers seven relationships or circumstances that might influence independence. However, the first three sentences of code provision B.1.1 make clear that this list is not exhaustive. There might be other factors, relationships or circumstances that cause the whole board decide to qualify the NED as non-independent. This decision is up to the discretionary power of the whole board, but the board has to state its reasons if it determines that a director is independent, while at least one of the seven situations mentioned above applies to him. These principles and code provisions mean that the UKCGC does not focus solely on independence in form, but also addresses concerns about the lack of independence in fact and in appearance.

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