USA Law and Practice Contributed by: Matt Hurd, Melissa Sawyer and Scott Crofton, Sullivan & Cromwell LLP
1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares for a discussion of how the independence of directors is determined. Management directors generally have more intimate knowledge of the corporation’s affairs as compared to independent directors. Certain states other than Delaware hold management directors to a higher standard of care due to their knowledge of and active involvement with the business. Independent directors are generally permitted to rely, within reasonable limits, on information provided by management and out - side advisers in satisfying their fiduciary duties. The board will also often appoint a chair from amongst its members to serve as the leader of the board. The chair can either be an independ - ent director or a non-independent director. When the chair of the board is non-independent (such as the CEO of the corporation), public corpo - rations generally appoint a lead independent director that has similar responsibilities as the chair to help ensure independent oversight of management. The specific responsibilities of the board’s chair are typically laid out in the corpora - tion’s corporate governance guidelines or other organisational documents, but usually include duties such as presiding at board and stock - holder meetings, establishing meeting sched - ules and agendas, serving as liaison between the board and management and being available, as needed, to meet with stockholders. In addi - tion to the board chair, the board also appoints chairs of each board committee. 4.3 Board Composition Requirements/ Recommendations Composition requirements for US boards are driven by stock exchange rules, federal secu -
rities laws, state law, and proxy advisory firm guidelines. Stock Exchange Rules Subject to certain exceptions, both the NYSE and Nasdaq rules require a majority of a public company’s board to be independent, and only independent directors may serve on the audit, compensation and/or nominating and corporate governance committees. The NYSE and Nas - daq have bright-line tests relating to whether a director qualifies as independent, which must be affirmatively determined by the board. See 1.3 Corporate Governance Requirements for Companies with Publicly Traded Shares for a detailed discussion of the NYSE and Nasdaq requirements on director independence. Federal Securities Laws The federal securities laws require each mem - ber of an audit committee to be independent and provide an overlay of independence require - ments for audit committee members. See 1.3 Corporate Governance Requirements for Com- panies With Publicly Traded Shares for a dis- cussion of independence requirements under Rule 10A-3. State Law State law typically does not impose minimum independence requirements for company boards. However, for corporations, having inde - pendent directors may be favourable to the cor - poration and its directors from a stockholder litigation perspective. For example, in the con - text of a conflicted corporate transaction (ie, a transaction in which an officer or director has an interest on both sides of the transaction), review and approval (or ratification) of the trans - action by disinterested directors (along with the implementation of other procedure protections,
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