A note on audit committee independence: Evidence from the NYSE on "grey" area directors

Grey area directors are those, who, although not employed by the corporation on whose board they serve, are affiliated with it or its management. Evidence is presented which indicates that "grey" area director representation on audit committees is pervasive across New York Stock Exchange (NYSE) firms and over time. Moreover, the affiliation or background of many "grey" area directors suggests that they enjoy a direct or indirect financial interest in the firms on whose audit committees they serve. These findings raise concern that such directors may be a potential source of violations of audit committee independence.