Under what circumstance is a non-executive director not considered independent?

A non-executive director is typically expected to bring an independent perspective to the board. Their independence is compromised under several circumstances, one of which is if they were an employee of the company in the last five years or received additional remuneration beyond their fees as a director. This situation poses a conflict of interest because the director may be influenced by their previous employment relationship or financial incentives that could bias their judgment regarding the company’s affairs.

When a non-executive director has been an employee, they may still have lingering loyalties to former colleagues or possess insider knowledge that can affect their ability to act independently. Similarly, receiving remuneration beyond standard director fees could create a perception of bias or a conflict regarding the interests of the company versus personal financial interests. Thus, such circumstances directly undermine their role as an independent advisor on the board.

Other factors, like having family ties with other directors or serving on the board for an extended period, may also challenge independence, but they do not inherently disqualify a director in the same way that previous employment or additional remuneration does. Moreover, advisory positions may raise concerns about independence, yet this scenario is not as prominent as the direct implications of past employment or financial ties.