Independent Outside Director - Definition
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Table of ContentsIndependent Outside Director DefinitionA Little More on What is an Independent Outside DirectorIndependent Outside Direct Versus Inside DirectorAcademic Research
Independent Outside Director Definition
An independent director is otherwise called an outside director. This is a member of a company's Board of Directors (BoD) this is selected outside of the company. This means this director is not an employee or top management staff of the company. Independent directors do not have ties with the company, they are also not affiliated with the subsidiaries, holdings or directors or employees of the company. Companies are required to have a number of independent or outside directors in their BoD given that these directors make unbiased decisions and bring fresh perspectives to the company.
A Little More on What is an Independent Outside Director
When included in a company's board of directors, independent outside directors bring balance. These directors have clear minds and new insights when it comes to decision making. This is why independent outside directors must not have any material or pecuniary relationship with the company or its associates. Objectivity is a core quality of independent outside directors, with this, they enhance improved health and outlook of the company. Oftentimes, independent directors are experts in their chosen fields and they positively impact a company. Shareholders of companies began to intensely push for the inclusion of independent outside directors in companies boards in the early 2000s. Their inclusion was aimed at improving the performance of companies.
Independent Outside Direct Versus Inside Director
Inside directors are members of a company's board of directors selected within the company. These directors have inner insights and are party to all the activities of the company. Typically, every company is required to have a blend of independent outside directors and inside directors in its board of directors. Inside directors are often top executives of the company such at the Chief Executive Officer (CEO), chief operating officer (COO), the chief financial officer (CFO) the chief operating officer (COO), and some major stakeholders. One distinguishing factor between inside directors and outside directors is that inside directors have a fiduciary duty to the company and act in the company's best interests but outside directors have no fiduciary duty to the company but are also required to act in the best interest of the company.