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(2) In order to fulfil their role, non-executive directors must acquire morality and business ability. (a) probity, integrity and high ethical standards, which are a prerequisite for all directors, (b) the expertise and knowledge necessary properly to discharge their responsibilities, (c) sound judgement, which is central to the non-executive director’s role, (d) the ability and willingness to challenge and probe, which is the basis for questioning and challenging the accepted thinking of the executive, (e) strong interpersonal skills, which are an essential characteristic of the effective non-executive director. Much of their effectiveness depends on exercising influence rather than giving orders and requires the establishment of high levels of trust. As well as, they must be well-informed about the business, the environment in which it operates and the issues it faces. This requires a knowledge of the markets in which the company operates as well as a full understanding of the company itself. Understanding the company is essential to gain credibility and reduce the inevitable disparity in knowledge between executive and non-executive directors. Inevitably, the effectiveness of a non-executive director’s contribution will change over time. Non-executive directors should be willing and able to acknowledge when their individual contribution is no longer fresh, and should make way for newcomers in an orderly and managed way.
(II.III) Role of the Non-executive Director
As regards the role played by non-executive directors, the Cadbury Committee made the following observations:
“4.4 Whilst it is the board as a whole which is the final authority, executive and non-executive directors are likely to contribute in different ways to its work. Non-executive directors have two particularly important contributions to make to the governance process as a consequence of their independence from executive responsibility. Neither is in conflict with the unitary nature of the board.
4.5 The first is in reviewing the performance of the board and of the executive. Non-executive directors should address this aspect of their responsibilities carefully and should ensure that the chairman is aware of their views. If the chairman is also the chief executive, board members should look to a senior non-executive director, who might be the deputy chairman, as the person to whom they should address any concerns about the combined office of chairman/chief executive and its consequences for the effectiveness of the board. A number of companies have recognised that role and some have done so formally in their Articles.
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, observed:
“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 command the respect of the executives and should be able to work with them in a cohesive team to further the company’s interests.”
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