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4.6 The second is in taking the lead where potential conflicts of interest arise. An important aspect of effective corporate governance is the recognition that the specific interests of the executive management and the wider interests of the company may at times diverge, for example over takeovers, boardroom succession or directors’ pay. Independent non-executive directors, whose interests are less directly affected are well-placed to help to resolve such situations.” The Hampel Review, six years later, ovserved:
“3.8 Non-executive directors are normally appointed to the board primarily for their contribution to the development of the company’s strategy. This is clearly right. We have found general acceptance that non-executive directors should have both a strategic and a monitoring function. In addition, and particularly in smaller companies, non-executive directors may contribute valuable expertise not otherwise available to management; or they may act as mentors to relatively inexperienced executives. What matters in every case is that the non-executive directors should be able to work with them in a cohesive team to further the company’s interests.”
Therefore, we can find the non-executive directors have made important contribution on these four aspects: business advice based on experience and knowledge; financial expertise, control and management practice and guardianship.[22]
B. weaknesses
In the practice, there are some advocates calling for the abolition of NEDs from the boardroom. The reasons can be found as followings:
l Usually, NEDs know very little about the business of the company on whose boards they sit. It is difficult for NEDs to direct company business without significant knowledge. Even if they spend some time in the company, they still will never know the business as well as the executives. So, if management is not too forthcoming, they will never know the issues, until it is far too later.
l NEDs rely heavily on the company for full and timely information in order to make an informed judgment about the company. The information can be easily edited to hide unpalatable news which may reach the recipient at too late a stage for effective action to be taken.[23] Particularly in the modern business environment, major corporate decisions have to be taken quickly, it may be logistically impossible to communicate adequate data to NEDs so as to canvass their opinions and advice, especially when they are geographically widespread.
l There is no employee or service agreements for NEDs, so that NEDs are largely a “self-perpetuating oligarchy”. Unlike the executives remuneration, i difficult question, which has been here for long time, is how to pay for NEDs. As individuals, NEDs could pursue their own benefit. Therefore, there is an immediate and irreconcilable conflict of interest. As Mr Justice Park in Re Continental Assurance Co of London plc(unreported: 27 April 2002) said: if the non-executive directors were liable to pay millions of pounds to the liquidators in this case, it is hard to imagine any well-advised person ever agreeing to accept appointment as a non-executive director of any company.
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