What is an Independent Outside Director?

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.

What Does an Independent Outside Director Do?

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.

Related Topics

• Corporate Governance Law (Intro)
• What is Business Governance?
• Berle-Means Thesis 
• Corporate Governance Rating Definition
• Who are the members of a corporation?
• Corporate Charter
• Shareholder Register
• Common Stock
• Preferred Stock
• Par Value
• Authorized Shares
• Issued Shares of Stock
• Unissued Shares of Stock
• Outstanding Shares
• Institutional Shares
• Dual Class Shares
• What is a closely-held corporation?
• Close Corporation Plan Definition
• What is a Private Company vs a Public Company?
• What is the role and purpose of the corporation?
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• Shareholder-Centric Perspective
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• What is the role & rights of Shareholders in the corporation?
  
• Shareholder Democracy Definition
• Quorum Definition
• Information Circular
• Straight and Cumulative Voting
• Statutory (Straight)
  
• Cumulative Voting
• Plurality Voting
• Class Voting Shareholders
• Changing the Voting Rules
• Supermajority (Voting)
• Shareholder Sponsored Proposal 
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• Stock Split
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• How can shareholder enforce their rights (direct and derivative actions)?
• Amotion
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• What are corporate vote Proxies?
• Proxy Statement
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• What is Shareholder Activism and the significance of Institutional Investors?
• Activist Investor
• Overview of Board of Directors
• Board Decision Making
• Advisory Board (Observer Directors)
• What is the role of the Board of Directors?
• Board of Trustees
• Board of Governors
• What is the composition of the board of directors?
• Chairman of the Board
• CEO as Chairman of the Board
• Inside Director
  
• Outside Director
• Outside Director or Non-Executive Director Definition
• Independent Outside Director
• Budget Committee
• Audit Committee
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• Board Evaluation Definition
• What is the Business Judgment Rule?
• What is D&O insurance?
• Codetermination (Foreign)
• What is the role of Managers of the corporation?
• What standards govern manager actions?
• Chief Executive Officer (CEO)
• Chief Financial Officer
• Chief Information Officer (CIO)
• Chief Investment Officer (CIO)
• Chief Legal Officer
• Chief Operating Officer
• Chief Risk Officer
• Chief Security Officer
• Chief Technology Officer (CTO)
• What are the primary state and federal corporate governance laws?
• What is the role of the state in corporate governance?
• What is the role of Securities Laws in corporate governance?
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• Voting Poison Pill Plan
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