Which statement best distinguishes independent directors from de facto directors?

• A. Independent directors have no material ties to management.
• B. De facto directors are formally appointed by the board.
• C. Independent directors are always part of the management team; de facto are not.
• D. De facto directors can never be liable for board duties.

Answer: (C)

This item tests the difference between independence on the board and someone acting as a director without formal appointment. Independent directors are chosen to provide unbiased oversight and are defined by having no material ties to management or controlling interests. De facto directors, on the other hand, are individuals who behave as directors without a formal appointment to the board and still owe fiduciary duties, meaning they can be liable for board actions. Therefore, the best statement is that independent directors have no material ties to management, which preserves objectivity, while de facto directors operate without formal appointment. The other options misstate the realities: de facto directors are not formally appointed; independent directors are not part of management; and de facto directors can still be liable for board duties.