Independent Director - interlocking boards

[oktavian]

I felt pretty clear on this issue until I did the CFA website question set “Corp Fin - Kocher”, question 2…
One director is on two boards in a similar industry. Does this mean the boards are “interlocking” and that director is not independent? Simple as that?
What if one director is on two boards in unrelated industries? Is this considered interlocking because he/she might encourage a conglomerate merger across industries; is he/she non-independent?
being on more than one board ==> not independent ?
(it’s in Corp Fin book, Corporate Governance, 5.1.1, fourth bullet point)

 

[citykris]

I think what the CFAI really means by interlocking is slightly different to what you’ve described. By “interlocking” they refer to a case in which for example CEO of A sits on the board of B and the B chairman serves on the board of A. Effectively the two companies are not independent, they become more “interdependent” by “interlocking” their directorships.
When in doubt I always check what CFA official reading says, and in this case they don’t say much about it - just mention one of the factors that often indicate a lack of independence: “interlocking directorships, a director of another company whose independence might be impaired by the relationship with the other board or company, particularly if the director serves on interlocking compensation committees”.

 

[oktavian]

I hate it when they test a gray area. The question on the CFA question set (“Corp Fin - Kocher”, question 2) has a man on company A and company B. Company B used to be a customer of company A.

 

[onlysimon]

citykris wrote:
When in doubt I always check what CFA official reading says, and in this case they don’t say much about it - just mention one of the factors that often indicate a lack of independence: “interlocking directorships, a director of another company whose independence might be impaired by the relationship with the other board or company, particularly if the director serves on interlocking compensation committees”.

This is the problem. CFAI does not define “interlocking”. Investopedia says it’s basically any company in the same industry (horizontal or vertical).
So just having one guy on the apple and microsoft board, makes the relationship interlocking.