Role Of Non-executive Directors Research Articles

Visibilizing and managing paradox: redefining the role of non-executive directors

PurposeThis paper aims to discuss the work of non-executive directors (NEDs) as inherently paradoxical. Paradox refers to the presence of persistent contradictions between interdependent forces. Those persistent tensions are explored, and approaches are indicated to stimulate the adaptive use of paradoxes as forces of innovation and renewal.Design/methodology/approachThis conceptual approach can be read as an invitation for corporate governance scholars to embrace the logic of paradox to expand the understanding of this topic. Paradox is not conceptualized as an alternative to dominant structural views, including board composition, but as a complementary conceptual perspective, a meta-theoretical lens to shed light on the tensions inherent to governance.FindingsThe authors propose that paradox theory offers a fresh conceptual lens to study the role of NEDs. This approach may help NEDs to turn tensions and paradoxes visible to develop a rich understanding of their work, as well as helping them navigate the complexities of organizing, a process rich in inherent paradoxicality.Originality/valueOrganizational paradox theory is a bourgeoning field of study, but the conceptual lens of paradox has still been underexplored in the study of corporate governance.

Boards and CSR: exploring the individual perceptions of non-executive directors

ABSTRACT This study explores how non-executive directors (NEDs) perceive board debates around corporate social responsibility (CSR) and how they make sense of these perceptions. It also investigates how individual NEDs view their role and the role of the board in governing CSR. To these ends, we conducted in-depth interviews with NEDs serving on the boards of French listed companies. The interviewees indicated that CSR was seldom discussed substantively at the board level during the interview period and that NEDs had different levels of comfort with this, depending on their personal views on CSR. To explain our findings, we draw on institutional logics, particularly the agentic approach to logics. More specifically, we detail how NEDs’ diverging views on CSR and on the roles of NEDs and boards in governing CSR reflected their different framings of the relationship between the profit-maximising and sustainability logics and distinguish three such framings: competitive, competing-yet-facilitative and additive. Moreover, we demonstrate that the interplay between board members’ framings shaped CSR board debates and, therefore, the extent to which the sustainability logic was accommodated at the board level. The NEDs’ narratives point to two other factors driving the extent of CSR board debates: external pressures from the business environment to act in line with the sustainability logic and the presence/absence of a CSR-board committee.

‘Welcome on board’: resource dependency and agency theoretic evidence from the South African life insurance market

PurposeThis paper examines the role of corporate governance on the financial performance of life insurers in South Africa. Specifically, the paper tests two competing hypotheses on the role of boards as effective monitors of opportunistic behaviour of executives, as prescribed by the agency theory or as an effective resource, as advocated by the resource dependency view.Design/methodology/approachThe paper estimates both static and dynamic panel data of 68 insurers from 2007 to 2014 using random effects, panel corrected standard error ordinary least squares and generalized method of moment’s estimation techniques. Board size, audit committee size, board independence and audit committee independence are used as the governance indicators while profitability is measured as returns on assets and equity.FindingsThe findings support both the resource dependency and agency theoretic views of boards. Specifically, the results indicate that large board and audit committees improve financial performance which supports the view of boards as effective resources for insurers. In addition, the role of non-executive directors in addressing agency conflict is reflected in the positive effect of board independence on financial performance. However, the long-run causal positive effect is only reported for audit committee size on return on assets. In addition, the paper also finds evidence of profitability persistence in the life insurance market. Finally, reinsurance usage, insurer size and market concentration were found to have a negative effect on financial performance.Practical implicationsThe findings re-enforce the important role of boards in their oversight responsibilities and as effective resources in the operations of highly specialized insurance businesses.Originality/valueAs far as the authors are concerned, this empirical analysis documents the first evidence of the linkages between governance mechanisms and financial performance of an insurance market in Africa.

Book review: “Corporate governance: Theoretical essentials and international practices”

This review covers the textbook titled “Corporate governance: Theoretical essentials and international prectices”, authored by Aws Alhares and Naser Ibrahim Abumustafa (Virtus Interpress, 2021; ISBN: 978-617-7309-17-7). The review focuses particularly on the relationship between corporate governance and financial structure, the role of institutional investors in corporate governance, the board of directors’ impact on performance and the role of non-executive directors, the audit function and the role of regulation international corporate governance, and socially responsible investment. It also highlights the contribution of this textbook to the ongoing discussion on key points relating to corporate governance

Editorial: New horizons in corporate law and governance research

Corporate governance and corporate law cover a wide range of eminent topics for the effective governance system. The articles published in this issue have focused particularly on the board configuration, commercial code regulations about the managers’ decision and compensation, the comparative perspective of the common law rule on pre incorporation contracts, and the responsibility of the company with the authorized fictitious capital from the evidence of emerging markets. Moreover, this issue includes a book review of the theoretical, essential, and international practices of corporate governance, which consists of various timely and interesting concepts, such as the role of institutional investors in corporate governance, the board of directors’ impact on performance and the role of non-executive directors, the audit function and the role of regulation international corporate governance, and socially responsible investment, etc.

Malaysian evidence supporting theoretical integration of roles of non-executive directors

Purpose The purpose of this paper is to investigate the role of independent non-executive directors (INEDs) in Malaysian public listed companies (PLCs), other than the control role prescribed by agency theory and reformatory documents such as the Malaysian Code of Corporate Governance. Design/methodology/approach A qualitative research design, consisting of face-to-face interviews with 27 company directors of Malaysian-owned PLCs, was instigated. Findings The interviews revealed that INEDs do more than just monitor their executive counterparts. Apart from the control role, INEDs of Malaysian companies provide a conduit for mitigating uncertainties in the environment and perform invaluable services to the host companies. Research limitations/implications This research utilized interviews. Generalizations may be an issue when interviews are used as the method of inquiry. Also, the sample is not random as access to many of the interviewed directors depended on recommendations. In addition, respondents were consciously selected in order to obtain various board positions that include independent and non-independent directors. Originality/value There are limited studies using qualitative research design in investigating INEDs’ performing other roles apart from the control role of the board in developing countries. Many of previous studies and literature in this area of corporate governance were predominantly based upon experiences of western economies.

The effect of characteristics of audit committee and board on corporate profitability in Iran

PurposeThe purpose of this paper is to evaluate the relationship between the characteristics of the audit committee and the board and profitability among the companies listed on the Tehran Stock Exchange (TSE) in Iran.Design/methodology/approachIn this study, the companies listed on the TSE during the period from 2010 to 2015 are investigated. The Linear panel regression method is employed for this purpose. The independent variables of the study are composed of some corporate governance mechanisms including audit committee size, audit committee expertise, board size, board independence, chief executive officer (CEO) duality, and institutional ownership.FindingsIn spite of the fact that there does not exist any significant association between audit committee size and corporate financial performance, the results indicate that there is a positive and significant relationship between audit committee financial expertise and profitability. The authors found that the number of board members cannot affect corporate performance; moreover, duality of CEO role in Iranian companies does not affect company performance. However, the outcomes showed a positive and significant association between the proportion of outside directors on the board (board independence) and profitability at 99 percent confidence level. This implies that the role of non-executive directors in Iran is inconsistent with the stewardship theory. This is due to the fact that independent directors understand the status of business and market better than the board’s executive members. Finally, the results indicated that there is no significant association between institutional owners and Iranian companies’ performance.Practical implicationsThe findings of this study will reveal more than ever the role of corporate governance mechanisms for society and users of financial statements because as tools on the CEO actions, they always have to pay attention to the implementation of corporate principles in the economic entity’ operation.Originality/valueThis is one of the most important studies that simultaneously examine the impacts of characteristics of the audit committee and the board on profitability in an emerging market, and the results of the study may give strength to Iranian as well other developing countries.

The Role of Non-Executive Directors on UK Corporate Boards

Shareholders face a daunting challenge: How to ensure that directors perform in the shareholders’ best interest and instead do not pursue their own goals. There are numerous examples in the corporate governance literature of managers neglecting their duties to shareholders and enriching themselves at the shareholders’ expense. Corporate performance suffers and investment decisions are made with disastrous consequences for the company. As a result, the fabric of corporate governance is badly impaired.Several cures have been suggested to amend this seeming juxtaposition between the interest of shareholders and managers. These include stricter public disclosure requirements on significant investment or takeover deals, increased importance of annual shareholders meetings in defining corporate strategy, and the opportunity for frequent direct meetings between shareholders and management. A recent thrust of reforms, however, is in redefining the role of non-executive directors (NEDs) on the board as a means of providing effective board accountability to shareholders. In what follows, the reform options on the role of NEDs are extended in several directions. These extensions provide further enhancement of their role as guardians of the interest of shareholders on corporate boards. It might be considered that such an enhanced role is the best additional remedy for the ills of corporate governance in the UK. As there is a shared opinion in the literature review that NEDs are seen currently as an effective instrument in ensuring accountability to the shareholders, the main thesis advanced in this paper is that this goal might be achieved by focusing their functions only on supervision of the board. This could be materialised by mainly supervising managers’ performance and controlling some of the major decisions but being discharged from any other responsibilities with which NEDs are presently loaded. In addition, it is proposed that for meeting this objective, NEDs should be made more responsive to the shareholders, thus executing their accountability agency. When scrutinising this proposal for the improvement of corporate governance, a number of issues that concern the operations of Boards of Directors should be examined; however, this paper will concentrate on the role of the NEDs as these supposed to be the gatekeepers of the Board, by elucidating the agency problem theory. Following this, the second step is to analyse the current role of the NEDs. Third, an assessment of their performance will be provided within the current UK legal framework by numbering some of the major problems. Finally, a proposal for reforms, regarding the challenges that NEDs need to confront in order to increase their accountability to shareholders will be suggested.

Role of non-executive directors in implementing non-regulatory codes on corporate governance in SMEs listed in the alternative investment market in the UK: A content analysis

This study explores roles of NEDs of SMEs listed in the Alternative Investment Market (AIM) in the London Stock Exchange. It extends the literature on NEDs’ roles relevant to a context where the adherence to the principles of non-regularity corporate governance is not compulsory. We adopted a content analysis approach as a novel method for exploring roles of NEDs using details of 1220 NEDs recorded in 75 annual reports. It revealed that NEDs meet the expectations of several stakeholders simultaneously by playing multiple roles. A conceptual model depicting testable relationship between cognitive tasks and key roles of NEDs is also developed

Non-Executive Directors and Mortality Assurance in the NHS ? Are they Fit for Purpose?

In UK NHS organizations, Non-Executives on Boards of Directors play a critical role in ensuring that organizations are delivering safe patient care. The role of Non-Executive Directors (NEDs) is to ‘challenge the decisions of the Board and help develop proposals on priorities, risk mitigation, values, standards and strategy’. This paper examines the extent to which they are able to do this in areas where the assessment of risk and its mitigation requires highly technical medical knowledge. Specifically, whether the highly technical nature of trust mortality data represents an obstacle to the proper and effective functioning of the Non-Executive Directors and their ability to question and hold operational directors to account for poor performance. This work is pertinent in light of recent high profile failures in corporate governance, where abnormal mortality statistics (and other important indicators of poor patient safety) have not triggered an appropriate Board response or corresponding remedial action. Using a mixed methods approach generating both qualitative (interview) and quantitative (survey) data this paper provides an assessment of NEDs’ knowledge and capabilities in the area of mortality assurance. The findings show that with the exception of those that are clinically trained, NEDs feel that they are unable to properly scrutinize trust mortality rates and hold the Board to account for the suitability and appropriateness of responses. They perceived themselves to be heavily reliant on the integrity of the Medical Director and to be unable to provide independent assurance in this area. These findings suggest the need for additional specialized training for Non-Executive Directors in order for them to properly and fully undertake their roles. ‘Non-Executive Directors should satisfy themselves as to the integrity of financial, clinical and other information, and that financial and clinical quality controls and systems of risk management and governance are robust and implemented.’

Independence of Non-Executive Directors in Public Limited Companies in Malawi

The role of Non-executive directors in public limited companies has been gaining eminence in the global perspective. Non-executive directors are seen as counter-balancing elements to the immerse powers of the executive directors who have long been accused of abusing their vested powers for their own benefits thereby bringing issues of agency costs.Malawi Stock Exchange – the sole capital market in Malawi, adopted The Code of Best Practice for Corporate Governance in Malawi based on Cadbury Report (1992) formulated by public and private groups led by Society of Accountants in Malawi in 2001. Subsequent codes developed in Malawi in 2010 and 2011 mirrored Higgs Report (2003) and Combined Code (2003) on the roles and independence of the Non-executive directors. Consequently, Malawian listed companies provide full disclosure on the roles and independence of their Non-executive directors.Findings in this study however depict that a substantial number of Non-executive directors are not independent emanating from conflict of interest as a result of significant shareholding in companies they represent, interlocking directorships and longevity in their current directorship. The debacle of this matter is that some Non-executive directors are too powerful such that Corporate Governance Principles alone cannot resolve current deficiencies in the independence of Non-executive directors. The capital market regulators should explore issuing strong directives or seek statutory provisions to redress current gaps in the roles and independence of Non-executive directors.

Corporate Governance: The Role of Non-Executive Directors and an International Perspective

The corporate governance is main requirement of corporate business in all over the world. It is the system by which companies are directed and controlled. The board of directors consist of the people who are responsible for directing the company towards success keeping in mind various factors. It is predetermined that non-executive directors can provide their independent view regarding business strategies, performances, appointments, resources and standard of conduct. Non-executive directors are core of good governance. It creates the relationship among shareholders, stakeholders and the corporations as a whole, relationship between corporations and markets and the relationship between the corporations and employees. This paper covers the idea of corporate governance, framework, current prominence of developing countries and its international perspective.

The Role of Non-Executive Directors in the Profitability of Banks: A Study of Universal Banks in Nigeria

In Nigeria, Banks’ multifaceted and pivotal role in the economic system has attracted regulatory attention in aneffort to inspire sound corporate governance standards and address the unique features of risks faced by creditinstitutions. The composition of the board of directors therefore constitutes one of the most essential corporategovernance themes and has caught the attention of academics and regulators alike. This paper thereforeemployed secondary data covering a period of 3 post consolidation years (2006-2008) in studying the effects ofthe proportion of non executive directors on the profitability of the listed banks in Nigeria. A panel dataregression analysis was used in analysing the variables under consideration. The paper observed from thefindings that a negative but significant relationship exists between ROE and NED. The paper concludes that thenegative association is likely to be because non executive directors are too busy with other commitments and areonly involved with the company business on a part-time basis. We therefore recommend that in other to haveproper monitoring by independent directors, bank regulatory bodies should require additional disclosure offinancial and personal ties between directors and the organizations they work for.

Structure and Reform of Corporate Governance in the United Kingdom in Relation to the Shareholder Versus the Stakeholder Theory

Corporate Governance structure in the UK has traditionally been based on the shareholder model which propounds shareholder primacy in the entire functioning of a corporate structure. Shareholder wealth maximization has been the primary objective in the working of all corporations in the United Kingdom. Opposed to this theory has been the stakeholder model which advocates equal participation of the major constituents the primary one being the creditors and the employees. It was not before the early 1990s that major changes in the Corporate Governance structure started taking place. Following financial scandals and collapses of major Corporate Houses like Maxwell, BCCI, Polly Peck, call was there to bring about immediate reforms in the regulation of the corporate structure. This was answered by various Committees starting from Cadbury eventually leading to drafting of the Combined Code 2003, which focused their research primarily upon the auditing structure, role of non-executive directors and institutional investors. The research paper primarily focuses on the development of the Corporate Governance debate in the UK in context of the shareholder and stakeholder models, and proposals forwarded by the Company Law Review Steering Group (CLRSG) in their working papers and came up with an Elightened Shareholder Value model. Further, the research paper concentrates substantially on Section 172 Companies Act 2006 which is the key provision highlighting the interests of stakeholders to be taken care of while promoting the success of the company. Section 6 of the dissertation has been devoted towards protection afforded to employees, creditors and whether recognition is given to corporate social responsibility by the current corporate governance structure. Also, key provisions highlighted by various self regulatory codes in context to non-executive directors and institutional investors have been identified. Overall the research paper is an effort to focus upon whether the UK corporate governance structure is willing to give recognition to the stakeholder approach and what relevant changes have been brought in relation to the same.

Understanding Directors' Pay in Europe: A Comparative and Empirical Analysis

This paper analyses the regulatory framework which applies to the determination of directors’ remuneration in Europe and the extent to which European firms follow best practices in corporate governance in this area, drawing on an empirical analysis of the governance systems which European firms adopt in setting remuneration and, in particular, on an empirical assessment of their diverging approaches to disclosure. These divergences persist despite recent reforms. After an examination of the link between optimal remuneration, corporate governance and regulation and an assessment of how regulatory reform has evolved in this area, the paper provides an overview of national laws and best practice corporate governance recommendations across the Member States following the adoption of the important EC Recommendations on directors’ remuneration and the role of non-executive directors in 2004 and 2005, respectively. This overview is largely based on the answers to questionnaires sent to legal experts from seventeen European Member States. The paper also provides an empirical analysis of governance practices and, in particular, firm disclosure of directors’ remuneration in Europe’s largest 300 listed firms by market capitalisation. The paper reveals that, notwithstanding a swathe of reforms across the Member States in recent years and harmonisation efforts, disclosure levels still vary from country to country and are strongly dependent on the existence of regulations and best practice guidelines in the firm’s home Member State. Convergence in disclosure practices is not strong; only a few basic standards are followed by the majority of the firms examined and there is strong divergence with respect to most of the criteria considered in the study. Consistent with previous research, our study reveals clear differences not only with respect to remuneration disclosure, but also with respect to shareholder engagement and the board’s role in the remuneration process and in setting remuneration guidelines. Ownership structures still ‘matter’; these divergences tend to follow different corporate governance systems and, in particular, the dispersed ownership/block-holding ownership divide. They do not appear to have been smoothed since the EC Company Law Action Plan was launched and notwithstanding the harmonisation that has been attempted in this field.

The role of non-executive directors in the Ghanaian SME sector

This paper reports on the role of NEDs among Ghanaian SMEs. The results of this study revealed that less than half of the SMEs sampled engage the services of NED. The study also revealed that relatively larger SMEs are more likely to employ the services of NEDs. We also found that over 80% of the SMEs with NEDs were either growing or growing rapidly. NEDs’ contributions were also found to be multi-various and cut across the range of SME board functions. The study showed that most SMEs acquire NEDs mainly through informal personal contacts such as family, friends of a director, business friends rather than through formal arrangements.

Can the Non‐executive Director be an Effective Gatekeeper? The Possible Development of a Legal Framework of Accountability

In the UK there has been a recent debate over the role of the independent non‐executive director, with that debate resulting in changes to a revised Code applicable to companies reporting after 1 November, 2003. This article reflects on an aspect of the proposed changes that was ignored, namely changes to the legal duties and liabilities of non‐executive directors. This appears to have been a missed opportunity in seeking to enhance the effectiveness of independent non‐executives and their contributions to enhancing corporate governance. This paper considers enhancing the governance role of non‐executive directors by introducing “gatekeeper liability”.

Compare and Contrast: perspectives on board committees

The establishment of board sub‐committees has been strongly recommended as a suitable mechanism for improving corporate governance, by delegating specific tasks from the main board to a smaller group and harnessing the contribution of non‐executive directors. In the UK, the Cadbury committee proposals focused on audit committees and the Greenbury study group advocated remuneration committees. Over the last decade, most large public com‐panies have set up such committees, but their impact on governance standards has not been widely explored. This paper identifies significant differences in the orientation and operation of these committees. It also draws on interview data collected from participants in audit and remuneration committees to argue that these differences may lead to unacknowledged pressures on non‐executive directors who form the membership of both committees. Given the current focus on the role of non‐executive directors, the impact of such pressure is of particu‐lar importance.

Leaders or Followers?

This article begins with a brief exploration of notions of leadership and governance, as perceived by school leaders, and in particular the leadership role of school governing bodies. It draws upon the findings of a recently completed DfES-funded research project into the current state of school leadership which, among other things, sought heads' and governors' views on such matters. It also considers ways in which governing bodies demonstrate `leadership' and are seen, by heads and others, to be of benefit to their schools. Finally, a brief comparison is made with the role of non-executive directors in the world outside of education and some of the implications of the findings are explored.

A New Way to Govern: Because 'World Best Practices' are the Problem Not the Solution

This paper was presented to generate debate about proposals developed by a 'Corporate Governance Council' set up by the Australian Stock Exchange (ASX) to advise on new guidelines. The paper identifies the invalidity of the assumptions implicit in the Sarbanes-Oxley Act in the US and the recommendations of the Higgs report in the UK into the role of non-executive directors. The paper describes how these assumptions lack validity in regards to the ability of non-executives directors, who meet the highest standards of independence, being able to protect themselves, the company, shareholders, or other stakeholders. Likewise, the invalidity of the assumption that an auditor can be independent when paid by those they audit. Another fundamental flaw in unitary governance is that the information on which directors rely for monitoring and evaluating the business and its management is provided by management. This widespread arrangement is inconsistent with directors performing their fiduciary role with due diligence and vigilance. A contributing factor to the lack of shareholder engagement to control boards is explained by the unethical but legal practice of a director controlling the process of a board being made accountable by chairing shareholder meetings. Lack of shareholder regulation in Australia also arises from corporations having the power to veto pension fund management mandates and a bank based oligarchy of corporate fund management and influence. While Australia leads the world with its requirement that corporations continuously disclose price sensitive information, the identity of share traders and shareholders, that can also be price sensitive information, is not required to be disclosed at the time of a trade, and this protect and so facilitates insider trading. Ways of ameliorating all these problems are suggested in the paper based on the analysis and recommendations presented in A New Way to Govern: Organisations and Society after Enron archived at http://ssrn.com/abstract=319867