Deep personal friendships are a particular joy of life. They should be treasured, whether they arise between neighbors, co-workers, classmates, teammates or any other myriad of relationships. Except, perhaps, when they arise between corporate board members and senior executives of the companies they serve. That’s when friendship can become a real problem, should the board member be otherwise considered “independent.”

That’s the ultimate message from a recent settlement involving the Securities and Exchange Commission that carries broad implications for corporate governance. The settlement resolved charges that a former CEO, chair and director of a NYSE-listed manufacturing company violated “proxy disclosure rules by standing for election as an independent director” when he withheld from the board information suggesting that he likely wasn’t all that independent. The settlement required the director to pay a civil penalty of $175,000, and accept a five-year officer-and-director bar.

Indeed, it turned out that the director had a close personal friendship with a high ranking company executive. This wasn’t any run-of-the-mill relationship; the director often travelled with the executive and their respective spouses, including on six international vacations. The director picked up the tab for more than $100,000 in expenses incurred by the executive and his spouse to join the director and his spouse on those trips.

Director independence has long been a “big deal” in the corporate governance world, going back to the Sarbanes-Oxley era. The thinking is that the leadership dynamic works best when a majority of a company’s board members are independent of executive leadership; i.e. the board isn’t controlled by directors who are somehow beholden to members of management.

There’s no single, all-encompassing definition of what constitutes an “independent director.” Depending on the company’s legal status, guidance can be found in a broad range of listing standards, regulations, statutes or even tax reporting requirements (for nonprofits). It’s usually grounded in some sort of material financial/compensation/executive employment arrangement or family connection involving a board member and the company.

The SEC’s settlement opens up a new but perhaps understandable perspective on director independence — that it can be compromised by material social relationships as well as financial and employment ones. The challenge will arise in determining what’s material and what’s essentially casual. Sharing a season ticket package for the hometown team’s games might not cross the line, but you can bet that an intimate personal relationship will. What falls in the middle? It’s going to take some time for a workable definition to settle in from a governance perspective.

As this issue plays itself out in the governance-sphere, the best course of action for the board may be to require disclosure of social relationships, using the most practical definition it possibly can. And the best course of action for the board member is to err on the side of disclosure, as opposed to parsing the definition. If it’s a discreet or otherwise confidential relationship, work with the company’s general counsel on how best to make the disclosure. It’s going to be a headache for the governance committee, no matter what.

Perhaps the larger governance theme is that director bias – for purposes of independence OR conflicts of interest analysis – can also arise “on the margins;” i.e. on the periphery of relationships traditionally recognized as creating independence or conflict concerns.

Perhaps the days of directors being “beer buddies” with the CEO or CFO may become a thing of the past. And the COO and the general counsel might see a decline in the number of dinner invitations they receive from board members. This thing could get a bit out of control for a while.

But one thing’s for sure, though – the whole subject of social independence is going to be a very difficult, but very important, issue for governing boards to confront.