The majority of the corporate governance must become independent directors. While it is true that there are questions on how capable they are in the context of governance, their ability to be removed from some of the material interests that would affect their decision making is by itself a positive point and hence it is necessary to encourage the created of more INEDs.
Materiality thresholds are prescribed under law to help identify whether a relationship exists and if a director must be considered non-independent (ASX Corporate Governance Council) (ASX, 2014). Usually the directors for the company are appointed by the board, so at the board level there are decisions to be made. The Annual General Meeting AGM is usually a confirmation meeting for such appointments done. Usually some form of an ordinary resolution meeting might also be passed when a director is appointed. Usually different companies might have some basic differences in how they select the INED; however, there are also many commonalities in how a INED is selected. The law has to be obeyed by all companies and this is a common element. Some of the sections of the corporation act that would directly affect the appointment of an independent director are that of Corporations Act section 201E, the ASX Listing Rule 14.5, the ASX Listing Rule 14.4, the Corporations Act Sections 203 D and 203 E and the Corporations Act Section 191(1). Each of these sections clearly demarcates how the material interest clause is decided. The material interest clause as identified for the company means that the company director must not in any way connect to affairs of the company, excepting some of the exceptions listed. The director with a material interest might also be prohibited from operating at the governance level or addressing some issues at the governance level. They might neither vote not might be present when such resolutions are passed.
In addition to the above, there are also key disclosure requirements for the INED. The independent director must comply with disclosure requirements also. The financial disclosure requirements are some of the cornerstones in regulatory requirements. It exists to inform the public, the external stakeholders and more who would be affected by decision making in the company. While companies are already expected to comply at many levels, the INED is also expected to comply with the disclosure effects and must ensure that the reasonable disclosure requirements are met in his capacity. “A company will be deemed to be “aware” of information if a director or executive officer has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as a director or executive officer of the company” (Baker & McKenzie, 2016, p.12). This form of disclosure requirements is not differentiated between the independent and the non-independent director and both will have to show compliance here.