What is board independence?

What is board independence? A short corporate governance guide explaining the concept and why it’s essential. 

Few concepts are as crucial to the modern board as board independence. A truly independent board can challenge leadership, ensure accountability, and safeguard shareholder interests. But achieving and maintaining independence is easier said than done.

Regulatory frameworks often set minimum independence requirements, yet many companies struggle to balance experience, oversight, and autonomy. 

So, what exactly is board independence, why does it matter, and how can businesses get it right?

Board independence is a measure of how capable a board is to act of its own accord and in the company’s best interest. Practically, it often refers to the presence of non-executive directors (NEDs). The more NEDs a board has, the more independent it is.

Board independence is crucial for decision-making because it frees a board from the dangers of conflicts of interest, internalised analysis and groupthink, which can often blind directors from the correct way forward.

A lack of board independence can erode trust among shareholders and regulators. Some of the most high-profile corporate failures in recent years have been attributed, at least in part, to boards that were too close to management.

For a board to be truly independent, its structure should limit the influence of insiders. This is why corporate governance best practices often recommend separating the roles of CEO and chairperson—to prevent one individual from having too much control.

Regulatory bodies worldwide have recognised the importance of this concept. For example, the UK’s Corporate Governance Code provides guidelines on how many board members should be independent and what qualifies as genuine independence.

Building and maintaining board independence requires deliberate action rather than just meeting regulatory checkboxes. Here are key steps companies can take:

• Establish clear criteria. Companies should define what independence means in their specific context. For example, a director who was employed by the company within the past five years may still hold biases, even if they technically qualify as an independent director under legal definitions.
• Diversify board recruitment. Boards should actively seek directors outside the company’s networks to ensure fresh perspectives. Many governance experts argue that board diversity is essential in making independence meaningful rather than just a tick-box exercise. 
• Strengthen governance policies. A strong corporate governance framework should include policies on board tenure limits, conflict of interest disclosures, and clear board responsibilities guidelines. Independent directors must also have access to external auditors and legal advisors to support their oversight role.
• Maintain a balance between executive and non-executive directors. An independent board doesn’t overdo it. Best practice suggests that, while there’s no magic number or percentage split that all companies should follow, they should ensure they know how to balance executive with independent so governance can run smoothly.

Board independence is a cornerstone of strong corporate governance. It provides the oversight and accountability needed to build resilient, well-managed companies. But true independence requires more than just meeting regulatory requirements—it demands a commitment to transparent decision-making, diverse recruitment, and clear governance policies.