The term outside director refers to a board of director member that has no other meaningful connection to the company. Outside directors are the converse of inside directors, which are board members that are also employees of the company.
A board of directors is a recognized group of select individuals who jointly oversee the activities of an organization, which can be either a for-profit business, nonprofit organization, or a government agency. Publicly traded companies are required to have a board of directors.
Members of a company’s board of directors (BOD) that have no other connection to the organization other than their role on the board are considered outside directors. Since outside directors have fewer perceived conflicts of interest, they can oftentimes provide more objective decisions. However, since they are less familiar with the company’s day-to-day operations, their first-hand knowledge of the company’s working environment is limited. For this reason, a mix of both inside and outside directors is desirable.
The BOD’s powers, duties and responsibilities are determined by government regulations and the organization’s own constitution and bylaws. The primary responsibility of the BOD is to make non-operating decisions on behalf of the organization or its shareholders.