Finding True Outsiders for Directorships

Corporate boards seeking independent directors should look beyond candidates’ resumes to see whether they’re running in the same social circles as the company’s chief executive, Securities and Exchange Commissioner Cynthia Glassman said Monday.

Proposed stock listing rules at the Nasdaq Stock Market and the New York Stock Exchange would require that, to qualify as an independent director, a person and his or her family would have to be free of any professional relationships with a company’s management.

Boards should go above and beyond the requirements to find directors who are truly outsiders, Glassman said in a speech at a directors’ conference in Washington.

“Personal relationships with the CEO -- living in the same community, kids at the same schools, moving in the same social circles -- are just as likely to undercut independence,” Glassman said. “You should not hesitate to go beyond what the rules require to find members who are truly independent in the broadest sense of that word.”

The exchanges and securities regulators have focused on the independence of directors as crucial to addressing investor concerns about excessive executive compensation and accurate financial reporting.