Non-executive Directors Role Purpose (1) Strategy Role. Non-executive directors should contribute tostrategy
Role & Purpose
(1) Strategy Role. Non-executive directors should contribute tostrategy success, challenging strategy, and offering advice on direction.
(2) Scrutiny Role. Non-executive directors should scrutinize theperformance of executive management. They should represent the shareholders’interests to ensure agency issues don’t arise to reduce shareholder value.
(3) Risk Role. Non-executive directors should ensure the company has arobust system of internal controls and system of risk management in place.
(4) People Role. Non-executive directors should be responsible forappointing & removing senior managers, and determining appropriate levelsof remuneration for executives.
Non-executive directors should beindependent-minded, which means exercising objective judgment in the bestinterests of the corporation whatever the consequences for the directorpersonally. Non-executive directors should provide a balancing influence, andplay a key role in reducing conflicts of interest between management andshareholders.
(1) Providing a detached and objective view of board decisions.
(2) Providing shareholders with an independent voice on the board.
(3) Reducing self-interest in the behavior of executives.
(4) Providing expertise and communicate effectively.
(1) Non-executive directors should have no business, financial or otherconnection with the company except director’s fee and shareholdings.
(2) Cross-directorships are a particular threatto independence of non-executive directors. It is where an executive directorof firm A is a non-executive director of firm B, and an executive director offirm B is a non-executive director of firm A.
(3) Non-executive directors should not take part in share option schemeand their service should not be pensionable.
(4) Appointment of non-executive directors should be for a specifiedterms and reappointment should not be automatic.
(1) Non-executive directors provide independent element on the board.It implies that they have the detachment to be able to monitor the company’saffairs effectively.
(2) Non-executive directors may have experiences and knowledge whichexecutive directors don not have. It expands the resources available formanagement to use.
(3) Non-executive directors may improve the communication betweenshareholders and company and are often a comfort factor for third party such ascreditors.
(4) Non-executive directors can provide wider perspective, andinstitutional perception is enhanced.
(1) Non-executive directors may have difficulty imposing their viewsupon the board.
(2) Non-executive directors face the problem of limited time that theycan devote to their role.
(3) Non-executive directors may damage company performance by weakeningboard unity and stifling entrepreneurship.
(4) Poor remuneration might lead people don’t want the job of beingnon-executive director. On the other hand, high-caliber non-executive directorsmay gravitate towards the best-run companies rather than companies which aremore in need of input from good non-executives.