board independence investment & finance definition

A relatively new concept in corporate governance that calls for a majority of board members to be independent from the company. Independence occurs when a board member has not been and is not currently employed by the company or its auditor and the board member’s employer doesn’t do a significant amount of business with the company. Each company creates its own definition of significant. Board independence was given legal definition and direction in 2002 in the Sarbanes-Oxley legislation. Stock exchanges, such as the New York Stock Exchange and the NASDAQ also passed their own rules governing the behavior of their listed companies.