Non-executive Directors and Fulfilling the Role Given to Them in the UK Corporate Governance Code - Essay Example

Are Non-Executive Directors Capable Of Fulfilling The Role Given To Them In The UK Corporate Governance Are Non-Executive Directors Capable Of Fulfilling The Role Given To Them In The UK Corporate Governance Code? The definition of non executive directors can be understood by a closer look at their roles and responsibilities in UK companies. Essentially the role of a non executive director is to provide creative contribution to the board of directors of a particular company. Non executive directors should be able to bring an independent judgment on issues that touch on strategy, performance, resource utilization, appointment of persons to key positions and standards of conduct in their respective companies. Due to lack of a legal distinction in the UK unitary board between non executive directors and executive directors it results to thyme having the same legal duties and potential liabilities. On executive directors do not give the same continuous attention to the business of the day of a company but should however show similar commitment as the executive directors (Council, 2010). The functions of the executive directors are well spelt out as they are aimed at providing an independent view about the company which differs from the day to day insights and activities. As part of the board of a specific company non executive directors should manage to bring: independence in their view of how the operations are run in the company, impartiality, wide experience in the activities a company undertakes and personal qualities that will add positive value in the company. The key responsibilities of non executive directors generally depend on the direction of the company and therefore the board seeks their opinion on issues such as: strategic direction-as an outsider they are considered to have a better objective view of the issues affecting the company than executives .In strategy formation they are constructive critics who provide a creative and informed contribution in managerial decisions. Monitoring of the performance of key executives is also an essential role they undertake and therefore address concerns as they arise. They are take part in auditor ensure the accounts are properly put in place. As non executives they should be able to ask any questions of any financial structures that have been put forward by the management (Council, 2010). UK Corporate Governance Code The governance code of the UK which is related to corporate is a set of standards of good practice in relation to board of director’s leadership and effectiveness, remuneration, degree of accountability and its relations to the shareholders. The UK corporate governance code is divided into main principles and supporting principles that help in advancing its provisions. Leadership is the first main principle and looks at role of the board, division of responsibility, the chairman and the non executive directors. The second principle focuses on the effectiveness of the board by laying a basis on the compositions of the board, appointments, its commitment and development, information, evaluation and the basis of re election. Accountability as a principle focuses on financial and business reporting, risk management and internal control and the audit committee with its auditors. The fourth principle on remuneration considers the level and components of compensation and the procedure for fixing remuneration. The last principle is the relations with shareholders and puts into account dialogue with the shareholders and having a constructive use of the AGM (Council, 2010). As per the UK Corporate Governance Code the main principle of non executive directors: as part of the unitary board they should be able to contribute constructively by challenging and developing proposals on the strategy. The supporting principle is to analyze the management’s performance in meeting the agreed goals as a way of monitoring performance. Additionally they should satisfy themselves on the integrity of financial position of the company and ensure financial controls and systems are relevant. They are also responsible for determination of appropriate levels of remuneration of executive directors and also play a key role in appointment or removal of executive’s directors in succession planning (Council, 2010). The main strengths of non executive directors lie in the roles and responsibilities that the UK corporate governance code has placed on them: non executive directors are able to perform independently and therefore their input and opinions are not influenced by the stand of the other board members. Due to the nature of their job description non executive directors are also able to enjoy principality and can therefore hold a meeting with the chairman of the board in absence of the executive directors to discuss issues of importance that may have arisen in the management. On executives directors are also able to earn a high degree of respect and trust especially because of their role of having no perceived personal interest in the company but instead focusing on the financial wellbeing of the company and a good position of the shareholders (Council, 2010). On the basis of the functions of non executives directors in that their nature of work mainly entails been in board meetings they rarely receive appreciation for sufficiently watching on the company but are mainly blamed incase external forces put the company in an uncertain situation thus posing as a weakness. Due to the changing nature of the role of the non executive, it has grown to incorporate corporate governance thus posing a reputational risk to the non executive directors. This therefore makes many non executive directors to feel challenged as they are aware they have to deal with increased responsibility, involvement and influence. The UK code does not specify the time limit a non executive director should be involved in a company’s work and therefore they have to give up their personal time to satisfy the currently hectic business environment (Council, 2010). I am positive that non executive directors are capable of performing the role placed on them by the UK Corporate Governance Code. By serving on a part time basis they should be able to meet their external responsibilities elsewhere and at the same time create time for screening the company operations. The non executive director should be able to input due diligence in accomplishment of the task of constructively contributing to the development strategies of the company and avoid bias in screening the position of the executive directors in terms of their performance. The roles that the UK code has placed on non executive directors of always satisfying themselves that the financial information calls for only commitment of the non executive unending commitment a non executive director is able to manage the responsibility of screening financial systems and therefore ensuring controls are put in place. On the challenge of time constraint its necessary for companies to specifically design programmes that are favorable to the non executive director in terms of having sufficient time for other activities he may be involved in elsewhere. In conclusion therefore the ability of a non executive director to meet the roles laid down by the UK codes of governance largely depends on their personal character in terms of commitment, innovation and experience to monitor and manage the management activities and decisions (Council, 2010). Reference Council, F. R., 2010. Corporate-Governance-Code.aspx. Available from http://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/The-UK- (Accessed April 12, 2013). Read More