One of the listing requirements that both the
New York Stock Exchange (NYSE)
and the
NASDAQ Stock Market
impose is that companies have a majority of independent directors who meet regularly without management present. The NYSE and the NASDAQ have also passed rules encouraging boards to make their nominating processes more transparent and open to scrutiny, in the hopes that this will force boards to look outside the CEO's circle for qualified directors who will truly represent shareholders.
What makes a director independent? The NYSE and the NASDAQ require that boards affirm that their independent directors have no material relationship with the company. Their definitions explicitly exclude:
People employed by the company within the last three years
Family members of those employees
Business partners of the company
Some corporate governance critics warn that boards should try to obey the spirit as well as the letter of the regulations and deliberately seek out directors who will be truly independent, not just those who may technically meet the requirements.
