Role of the Non-Executive Director in an organization - Higgs Report (ACCA P1 Paper: Governance, Risk and Ethics)

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

What is the role of the Non-Executive Director in an organization?

A non-executive directors is a member of the board of directors and who is not involved in the day to day running or operations of the company and are not part of the executive member team of the organization.

However, they are involved in overall strategic planning, policy making of the company with the same legal obligations, responsibilities and liabilities if an incident should occur as is the case with the executive directors.

Non executive should be seen and should operate independently and in some countries are called independent directors and they mainly operate in an advisory capacity and are not full time employees of the company.

Students studying the ACCA P1 Paper: Governance, Risk and Ethics, will find the below useful in their revision studies.

For easy remembrance once again i am going to use a synonym which can be as the following:

"CSSR"

Role of the Non-Executive Director are as follows:

Non-Executive Directors should:

C: Contribute and challenge the organizational strategy for it's continued success.

S: Satisfy themselves that the there is adequate internal controls and risk management system in place. And also that the financial information generated by the organization is accurate.

S: Scrutinize management performance and monitor the reporting of performance for meeting agreed goals and objectives.

R: Responsible for the remuneration of Executive Directors and have a major role in contractual and disciplinary measures if necessary to be taken against executive directors. And are primarily involved in removing, appointing senior management and succession planning. Also, hold executive directors to account for their actions and to represent the shareholder interest.


The following quote is taken directly from Derek Higgs Report: 

"The role of the non-executive director is frequently described as having two principal components: monitoring executive activity and contributing to the development of strategy. Both Cadbury and Hampel identified a tension between these two elements.

A number of consultation responses identified the personal attributes required of the effective non-executive director. They are founded on:

• integrity and high ethical standards
• sound judgement;
• the ability and willingness to challenge and probe; and
• strong interpersonal skills."

Source:

http://www.ecgi.org/codes/documents/higgsreport.pdf

Please, note of the below: 

In April 2002 Derek Higgs was appointed to lead an independent review of the role and effectiveness of non-executive directors. Derek Higgs published his report on 20th January 2003. The FRC published good practice suggestions from the report in June 2006; this guidance has since been withdrawn and replaced by the FRC Guidance on Board Effectiveness.

http://www.icaew.com/en/library/subject-gateways/corporate-governance/codes-and-reports/higgs-report

Sources on Corporate Governance:

https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx

https://en.wikipedia.org/wiki/Corporate_governance

http://guides.library.harvard.edu/c.php?g=309897&p=2070088

http://ec.europa.eu/justice/civil/company-law/corporate-governance/index_en.htm

http://www.oecd.org/corporate/principles-corporate-governance.htm

https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

http://www.cimaglobal.com/Documents/ImportedDocuments/NEDSmakingcorpgovwork_techguide_2003.pdf

https://www.icas.com/__data/assets/pdf_file/0014/2417/Non-Executive-Directors-Roles-and-Responsibilities-in-a-Private-Company-ICAS.pdf