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...
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