Non-Executive Directors
In his review published in 2003, Derek Higgs described the role of a non-executive director as ‘custodian of the governance process.’
A non-executive director (NED) sits on the board of company just as a normal executive director would do so, however a non-executive director does not form part of the executive management team of the company. Essentially they are not an employee of the company or affiliated in any way other than their role as an independent NED. The distinction between a non-executive director and an executive director is illustrated in Equitable Life Assurance v Bowley [2003] in which Langley J commented
‘It is well known that the role of non-executive directors in corporate governance has been subject of debate in recent years…It is plainly arguable, I think, that a company may reasonably at least look to non-executive directors for independence of judgement and supervision of the executive management.’
Essentially, non-executive directors are non-stakeholders in a company or organisation, and do not have day-to-day management responsibility, thereby rendering them independent of the executive board. In the post-Enron era, this independence has become crucial for corporate governance, so much so that the Higgs report of 2003 commissioned to examine the role of non-executive directors recommended that a company 's board should comprise at least 50% non-executive directors.
In 1992 the Cadbury Committee published a report to review the code of practice on corporate governance. The concept of corporate governance can be defined in a number of different ways because corporate governance potentially covers all activities that have a direct or indirect influence on the financial well being of a corporation. As a result, many different definitions have surfaced. The earliest definition of corporate governance came from the Economist Milton Friedman. According to Friedman, corporate governance is to conduct business in accordance with
A non-executive director (NED) sits on the board of company just as a normal executive director would do so, however a non-executive director does not form part of the executive management team of the company. Essentially they are not an employee of the company or affiliated in any way other than their role as an independent NED. The distinction between a non-executive director and an executive director is illustrated in Equitable Life Assurance v Bowley [2003] in which Langley J commented
‘It is well known that the role of non-executive directors in corporate governance has been subject of debate in recent years…It is plainly arguable, I think, that a company may reasonably at least look to non-executive directors for independence of judgement and supervision of the executive management.’
Essentially, non-executive directors are non-stakeholders in a company or organisation, and do not have day-to-day management responsibility, thereby rendering them independent of the executive board. In the post-Enron era, this independence has become crucial for corporate governance, so much so that the Higgs report of 2003 commissioned to examine the role of non-executive directors recommended that a company 's board should comprise at least 50% non-executive directors.
In 1992 the Cadbury Committee published a report to review the code of practice on corporate governance. The concept of corporate governance can be defined in a number of different ways because corporate governance potentially covers all activities that have a direct or indirect influence on the financial well being of a corporation. As a result, many different definitions have surfaced. The earliest definition of corporate governance came from the Economist Milton Friedman. According to Friedman, corporate governance is to conduct business in accordance with
Bibliography: Books Higgs, D, Review of the role and effectiveness of non-executive directors, (London: Department of Trade & Industry, 2003) Loose, P, Griffiths, M, Impey, D, The Company Director: Powers, Duties and Liabilities, (2007, Bristol: Jordan Publishing Limited) Mallin, C, Corporate Governance, (2007, New York: Oxford University Press) Journal Articles Foy, A, ‘Institutional Investors’, (1998), Journal of International Banking and Financial Law, 7 296 Graham, R, ‘Combined Code on Corporate Governance: An Updated version’, (2006), 30 Company Secretary’s Review, 8, 62 Graham, R, ‘Review of the Combined Code’ (2007), 31 Company Secretary’s Review, 4, 30 Hanley, K, ‘Non-Executive Directors: The Director’s Cut’, (2007), Law Society Gazette, 7 Keay, A, ‘Company directors behaving poorly: disciplinary options for shareholders, (2007), Journal of Business Law, 656 Roach, L, ‘CEOs, chairmen and fat-cats: the institutions are watching you’ (2006) The Company Lawyer, 297 Spedding, L, ‘Corporate Governance Issues’, (2006) Ad Bus 3 5 (11)