The role of boards and its relationship to management must be clearly identified. The Companies Act provides that companies must have directors but does not define their functions. This is left to the articles of association, where the most undertaken practice consists of vesting the board of all the powers necessary for the management of the business, apart from those reserved by the Act to be exclusively exercised by the shareholders in general meetings. Thus, the need for a statutory statement of directors' duties makes no doubt. Derek Higgs has issued a review on the role and effectiveness of non-executive directors. The recommendations were introduced in the revised Combined which came into effect in November 2003. Nearly all of the 50 recommendations made in the Higgs Report were incorporated into the revised Code. The terms of reference of the Higgs review included an assessment of the population of non-executive directors in the UK, the process of appointment, the extent to which they are independent, their effectiveness, their accountability including their relationship with institutional investors and issues relating to their remuneration and the role of the Combined Code on Corporate Governance.
[...] An issue of wide significance is whether the role of non-executive directors as a matter of best practice of corporate governance is best characterised as that of a monitor of the executive management, or of a contributor to overall strategic planning and direction, or as some mix of the two. Some commentators have queried whether it is really possible for one person effectively to be at the same time someone who monitors the executive directors and someone who co-operates with them in the company's strategic development. [...]
[...] p See Weil, Gotshal & Manges LLP, on behalf of the European Commission, Internal Market Directorate General, Comparative Study of Corporate Governance Codes Relevant to the European Union and its Member States (January 2002) available at www.europa.eu.int/comm/internal_market/en/company/news/corp-gov. at p.43. J.E. Parkinson, op. cit., at p.192. The American Law Institute, Principles of Corporate Governance: Analysis and Recommendations (St Paul, Minn.: American Law Institute Publishers, 1994) vol p.77. PRO NED, Code of practice on non-executive directors (1987). J.E Parkinson, op. cit., p Dr Rita Esen, “Managing and monitoring the role of non-executive directors on U.K. [...]
[...] In fact, the level of involvement suggested by the Higgs report by non-executive directors may mean that, in many instances, they will end up occupying a position closer to an executive post than is currently the position. That in turn may reduce the number of non-executive posts which individuals will be able to undertake. Indeed, there is fear that the overall effect of the Higgs report could discouraged private practice solicitors to join the boards of client companies. Mr Treves, a non-executive chairman of insurance group Equitable Life pointed out that ‘there will be a risk of conflict of interest, particularly in the situation where the law firm makes a mistake. [...]
[...] Finally, they should have a greater exposure to major shareholders (particularly the senior independent director) Closer discussion boards Currently, the Code recommends that there should be a recognised senior independent Ned (irrespective of whether the roles of chairman and chief executive officer are combined) who must be identified in the annual report. The Higgs Report (January 2003) also recommended that this senior independent director should attend regular meetings with the company's shareholders. Higgs pointed out that non-executive directors only met rarely with shareholders and considered that they should be far more involved in the process of institutional shareholder engagement. [...]
[...] Victoria MacCallum, Higgs report set to curtail solicitors on client boards” (2003) Gazette January “Non-executive directors and the Higgs review” Butterworths Corporate Law Service, February 2003. Michael Gerrard, “Keeping good company” (2003) Gazette March Reports Committee on the Financial Aspects of the Corporate Governance (The Cadbury Committee), Report (1992). Final Report of the Committee on Corporate Governance (Hampel Report), Report (1998). Modern company law for a competitive economy (DTI Consultative Paper) (1998). PRO NED, Code of practice on non-executive directors (1987). [...]
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