20 February 2002
The Enron scandal has raised doubts about the effectiveness of non-executive directors (NEDs). In its latest best practice guide on this subject, 'Non-executive directors: Their value to management', CIMA explains why non-executive directors are crucial to corporate governance control. The guide is available from CIMA as a free resource to those needing guidance on the effective selection and use of non-executive directors.
CIMA Chief Executive, Charles Tilley, a former KPMG partner and finance director of the Hambro banking group, said:
'There continues to be a lack of appreciation of the added value a non-executive director can bring to a company. They have a vital role to play in both monitoring the performance and conduct of executive management and in contributing to the strategic direction of a company. But their value to management depends on a robust selection procedure, appropriate training and on the way that they contribute to a Board’s deliberations.'
'There are essential qualities that a non-executive director can bring to an organisation, whatever its position in the business lifecycle. A non-executive director selected on merit can bring an independent view on a range of matters, drawing on knowledge and expertise which is not otherwise available to the company. Many companies, however, underestimate the training needs of NEDs. Training is critical to ensuring that those appointed as directors have opportunities to come to terms with their role and responsibilities and also remain equipped over time to handle the responsibilities of Board membership.'
'They only provide value to management if they have an independent frame of mind from the executive directors and are prepared to ask difficult questions, some of which may be embarrassing and challenging at an Audit, Remuneration Committee and main Board level.'
'Attaining accountability and transparency that is vital to good corporate governance can only be achieved where NEDs pursue a strong monitoring role, particularly focused on the integrity and disclosure of financial accounts and ensuring that directors’ pay is publicly defensible.'
'Given the importance of the financial aspect of corporate governance, we would also encourage that at least one non-executive director needs a high level of skill and experience in financial matters that is adequate to enable him/her to monitor and challenge decisions and performance.'
'At a time when companies will be assessing their policy on the use of non-executive and how best to firm up their role, a guide conveying insights on how non-executive directors can bring added value is, itself, invaluable.'
You can download Non-executive directors: Their value to management free, from this page.
If you would like more information please contact Lottie Muir
Phone: +44 (0)208 849 2407
Email: lottie.muir@cimaglobal.com
