The Independent Director: Build the Record Before Independence Is Challenged

There is no shortage of writing about independent directors. This is not another article arguing that boards need more of them.

The less frequently examined question comes one step earlier: Who selected the independent director, what did the board know when the selection was made, and what record supports the determination that the director was independent?

For general counsel, those are practical questions. The GC often helps identify candidates, investigates relationships, advises whether a candidate satisfies the applicable independence standard and presents a recommendation to the board. If that determination is challenged later, the GC may also be asked to reconstruct what the board knew and why it acted.

The issue is becoming more consequential as companies rely on independent directors and special committees in controller transactions, private-equity restructurings, continuation-fund transactions, internal investigations, and financial distress. Across the board, a lot rests on a few directors—mainly because they’re expected to make unbiased decisions without outside pressure.

The legal question is whether those directors satisfy the applicable independence and disinterestedness standards. For general counsel, the additional question is whether the company can demonstrate why that conclusion was reasonable when made. That record may ultimately become part of the defense of the board itself.

The new Delaware rules

The 2025 amendments to Section 144 of the Delaware General Corporation Law make the subject particularly timely.

Among other things, Section 144(d)(2) provides a heightened presumption of disinterestedness for directors of exchange-listed corporations when the board has determined that the director satisfies applicable exchange independence criteria. Section 144(d)(3) adds that a person’s designation, nomination or vote in the election of a director does not, by itself, establish that the director is not disinterested. A director is not rendered non-independent simply because a CEO, controlling stockholder, sponsor, general counsel or other interested participant suggested the candidate.

Two recent Court of Chancery decisions begin to show how the amended statute works.

In Ayers v. Foley, the court applied Section 144(d)(2)’s heightened presumption for the first time and held that only substantial and particularized facts supporting a material interest or relationship could overcome it.

Then, in Dodiya v. Franklin, the court made the distinction more concrete. It rejected an independence challenge based on an interested stockholder’s alleged recommendation of one director, consistent with Section 144(d)(3). But it found the heightened presumption overcome as to another director whose relationship with an interested fiduciary included two decades of employment, more than $20 million in compensation and a current job reporting to him.

For general counsel, the contrast is the point: who recommended the director is part of the history, but the recommendation is not the conflict. Material relationships are.

Dodiya also illustrates why identifying independent directors is not the end of the inquiry. Section 144(a)(1) requires the board or committee authorizing a conflicted transaction to act in good faith and without gross negligence. In Dodiya, a majority of the board was disinterested, yet the safe harbor was unavailable at the pleading stage because the board had let a conflicted CEO back into the process after learning he had leaked confidential information to the buyer. The safe harbor protects independent directors only if the process they ran can withstand review.

Counsel’s dual role

The GC’s involvement may strengthen the board’s position if its independence determination is later challenged.

Section 141(e) of the Delaware General Corporation Law protects directors and committee members who, subject to its requirements, rely in good faith on specified corporate information and on information, opinions, reports or statements from outside professionals or experts. For an outside professional or expert, the matter must reasonably be believed to fall within that person’s professional or expert competence, and the person must have been “selected with reasonable care by or on behalf of the corporation.”

That phrase applies to the professional or expert, not to selection of the independent director. But it reinforces a practical point: Delaware law contemplates directors receiving and relying on professional advice.

If the board asks the GC, “Do you believe this person is independent?” counsel should answer. That answer may amount to a recommendation. There is nothing inherently problematic about that. A board seeking legal advice about independence should expect counsel to provide a conclusion, not merely recite the law.

What the record must preserve is the line between counsel’s recommendation and the board’s decision. Counsel can recommend a candidate and advise that the candidate is independent. The board may place substantial weight on that advice. The board nevertheless makes the determination.

Judgment vs. expertise

An independent director ordinarily need not arrive as an expert in the matter the committee will investigate or decide. The director’s job is to exercise independent judgment, understand the mandate, evaluate the advice received and ask appropriate questions.

The committee’s advisors present a different issue. A committee confronting a complicated restructuring, related-party transaction, accounting problem, regulatory issue or investigation should have access to professionals with the expertise the assignment requires. No single lawyer needs to possess every specialty. Committee counsel can bring in regulatory lawyers, forensic accountants, financial advisors or other experts as necessary.

The advisors supply the expertise. The directors supply the judgment, and they must become informed enough about the advice to exercise it. Reliance is not a substitute for understanding.

For general counsel, selecting the independent director may therefore be only half the job. The GC should also ask whether the committee has the right advisors.

A tale of two records

Compare a standard, single-sentence resolution—“Upon advice of counsel, the Board determined Jane Smith to be independent”—with a record that details the governing standard, relationships examined, close calls weighed, and counsel’s advice.

Both reach the same conclusion. Only the second shows what the board knew and why it acted, and it demonstrates not merely that counsel reached a conclusion but that the directors had a basis for accepting it.

Prior relationships are not necessarily disqualifying. A GC or outside lawyer may recommend someone precisely because of favorable experience with that person’s judgment in another matter. The relevant question is whether potentially material relationships were identified and evaluated rather than left to emerge later in discovery.

The same principle applies to the committee’s advisors. The record need not catalogue every credential and relationship, but it should support the committee’s reasonable reliance on them.

Seven practical questions for GCs

For a consequential appointment, the GC should be able to answer seven questions:

• Who identified the candidate?
• What potentially material relationships were investigated?
• What independence standard was applied?
• What did counsel recommend, and why?
• Were close questions disclosed to the board?
• What did the board itself determine?
• Does the committee have advisors with the expertise the assignment requires?

The minutes need not become a legal memorandum. The record should, however, demonstrate that the board had enough information to make its own determination.

These questions are not confined to public companies. Similar process issues arise in private-equity portfolio companies, closely held companies and nonprofits, although the governing law and available protections differ. The common point is narrower: if an organization relies on someone because independence matters, it should be able to explain why that person was considered independent.

In many cases the GC should recommend the independent director. The question a challenger will ask is not whether counsel made the recommendation but whether the company can show why the board accepted it.

That showing is what the directors will need if someone later alleges that a supposedly independent decision-maker was beholden to management, a controlling stockholder, a sponsor or another interested party. Counsel can recommend independence and the board can determine it, but neither will help the directors much unless the record shows why each conclusion was reasonable when made.