Issues of board independence, and particularly the position and role of independent directors, have resurfaced to the fore in India in recent months. Given this scenario, it may be useful to consider developments relating to board independence occurring elsewhere. Here, a ruling last month from the Delaware Supreme Court on the determination of board independence would be of interest.In Thomas Sandys v. Mark J. Pincus, the Delaware Supreme Court was concerned with a shareholder derivative action brought by a shareholder of Zynga Inc. on behalf of the company against some of the directors for their role in secondary stock offering by the company. In considering whether the plaintiff shareholder may be excused from making a demand on the board before allowing a derivative litigation, the Court had to determine whether a majority of the board was indeed independent or not. In doing so, the Court was essentially concerned with the independence (or otherwise) of three directors whose status would impinge upon the outcome of whether a majority of the board consisted of independent directors.In considering the position of these the directors, the Court looked at their relationships with the company as well as with the controlling shareholder. Zynga Inc. was controlled by Mr Pincus, who held 61% voting shares in the company. Hence, the Court had to examine the relationships of the directors not only with the company, but also with the controlling shareholder. Beginning with the position of Ms. Siminoff, one of the directors of the company, the Court noted that she and her husband co-owned an airplane with the controlling shareholder, “which is suggestive of an extremely intimate personal friendship between their families”. The Court further observed: Co-ownership of a private plane involves a partnership in a personal asset that is not only very expensive, but that also requires close cooperation in use, which is suggestive of detailed planning indicative of a continuing, close personal friendship. In fact, it is suggestive of the type of very close personal relationship that, like family ties, one would expect to heavily influence a human‘s ability to exercise impartial judgment. … Here, the facts support an inference that Siminoff would not be able to act impartially when deciding whether to move forward with a suit implicating a very close friend with whom she and her husband co-own a private plane.Second, the Court was concerned with two other directors, who are partners with the prominent venture capital firm, Kleiner Perkins Caufield & Byers, which held not only 9.2% of Zynga’s equity as a result of being an early-stage investor, but they also had other interlocking relationships with the controlling shareholder as well as another shareholder of Zynga. Here, the Court observed:Although it is true that entrepreneurs like the controller need access to venture capital, it is also true that venture capitalists compete to fund the best entrepreneurs and that these relationships can generate ongoing economic opportunities. There is nothing wrong with that, as that is how commerce often proceeds, but these relationships can give rise to human motivations compromising the participants’ ability to act impartially toward each other on a matter of material importance.Moreover, the fact that the two venture capital directors were not shown as being independent for the purposes of the listing requirements with NASDAQ also played a role in the Court’s determination regarding their non-independence.The fact that matters relating to definition of independence are tricky is evident from the fact that the five-judge bench of the Delaware Supreme Court could not arrive at a unanimous conclusion. One of the judges dissented and, in her ruling, found that the above relationships were not so significant as to impinge upon the independence of these directors. Calling this a “close case”, she agreed with the Chancery judge in finding that matters such as co-ownership of an asset “do not reveal a sufficiently deep personal connection to [the controlling shareholder] so as to raise a reasonable doubt about [the director’s] independence from [the controlling shareholder]”.This decision is important for a number of reasons. First, close personal relationships may be taken into account by the Delaware courts while considering the independence of directors. This they do on the basis of principles and guidance laid down in judicial decisions. Of course, in a principles-based approach, the outcomes can differ depending on the facts and circumstances of each case, thereby possibly leading to some level of uncertainty. Second, the decision also bears importance regarding directors who represent venture capital firms (or even private equity firms) that may have invested a significant stake in the company. Although in this case those directors had other relationships with the controlling shareholder, the fact that a venture capital firm or private equity firm may have a significant stake in the company could potentially itself invoke the attention of the court as their interests may not always be concomitant with the interests of the other minority shareholders.While this decision is significant from a Delaware perspective, its approach may not be directly applicable in the Indian context. While Delaware jurisprudence on board independence is based on a principles-based approach developed through judicial rulings, the Indian approach is rules-based, as enshrined in the Companies Act, 2013 and the regulations issued by the Securities and Exchange Board of India. Nevertheless, developments in jurisdictions such as Delaware may provide some guidance regarding the types of issues that could arise in board independence. For example, personal relationships (that are not pecuniary in nature) do not receive any attention under Indian law for determining board independence. This is despite such relationships being a common feature in the Indian business realm. Moreover, questions regarding the position and role of directors nominated by financial investors such as private equity funds and venture capital firms are quite common in India as well. Finally, the Delaware Supreme Court’s decision in the present case may have a greater bearing in the Indian context than other cases from that jurisdiction, since the case involved a controlled company that is altogether common in the Indian context. Here, as the court emphasizes, the independence of directors must be judged both from the relationship with the company and with that of the controlling shareholder. It would be useful to end with a quote from the Delaware Supreme Court as to the influence of controlling shareholders in companies with concentrated shareholding:In the case of a company like Zynga, which has a controlling stockholder, Pincus, who wields 61% of the voting power, if a director cannot be presumed capable of acting independently because the director derives material benefits from her relationship with the company that could weigh on her mind in considering an issue before the board, she necessarily cannot be presumed capable of acting independently of the company‘s controlling stockholder. That a director sits on a controlled company pleading stage, as that would make the question of independence tautological. But, our courts cannot blind themselves to that reality when considering whether a director on a controlled company board has other ties to the controller beyond her relationship at the controlled company.Such a statement cannot be truer in the Indian context where the influence of controlling shareholders in Indian companies continues to be quite strong, as we have witnessed more recently.