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A member of a publicly-traded company's board of directors that is not otherwise employed by or engaged with the company. That is, he/she does not represent shareholders or major executives in the company. Outside directors are thought to be advantageous because they offer objectivity and have little or no chance of conflict of interest. However, there is the possibility that an outside director might be unengaged with the issues involved in the company's governance. The Sarbanes-Oxley Act of 2002 mandates that a certain percentage of boards of directors be outside directors. It is illegal for outside directors to sit on multiple boards in the same industry as this may result in conflicts of interest.
A member of a firm's board of directors who is not employed in another capacity by that firm. An example is the president of one firm who serves as a director of another firm. Some people believe that at least some outside directors are needed to give a board balance and to protect stockholders' interests. Compare inside director.