Conclusions and Recommendations
If these observations are accurate, NEDs face such potentially severe liabilities, and the mismatch of expectations is so great, that there will be problems in recruitment and retention as well as more serious issues. A role may have been undermined that serves business and society with high standards of corporate governance. High-quality candidates will be lost.
What could be done about this?
The importance of the educational task was noted several times above; that is, educating society – tuning its expectations – about the proper role of NEDs, and NEDs about the expectations of society. This process might cover:
- – ensuring the highest quality of individual – good governance requires good people;
- – recognition of the nature of the role – that it is not a sinecure;
- – high standards in recruitment and remuneration;
- – clarity of expectations and duties;
- – recognition of the different practical roles of executives and non-executives;
- – balance of strategic and monitoring roles.
Professional bodies, trade groups, think tanks, individual companies and directors themselves have a shared responsibility for this task.
As a society, how do we get NEDs to do the job we want them to do? How do we implement good practice? Directors perform an essential role and must be held to the highest standards of governance, but proportion, balance and perspective are essential, along with recognising the complexities and the tensions.
Business and indeed business organisations have an educational responsibility, not only to their own constituents but also to society and policymakers, about the role of business, boards and directors. Society too has a responsibility to make known the benefits as well as the responsibilities of business. There needs to be more open dialogue about: principles rather than rules; an acceptance of learning from mistakes; and a need for greater realism. Fairness is a two-way street – the framework must be fair to individuals, business and wider society. NEDs need to be aware of their duties and the expectations put on them. We need to create a new system to encourage high-quality, thinking people to become NEDs – and they need to know that the legal standard is clear and the enforcement system fair. There must be clarity over what liability comes with honest decisions made in good faith.
Recommendations arising from this discussion are as follows:
- – consideration of a revision to company law to reflect the strategic nature of the director’s role, alongside compliance and monitoring, and clearer statements of duty and liability, excluding strict liability;
- – the publication, perhaps as an appendix in the Corporate Governance Code,[1] of a summary of the role of, and expectations placed on, a non-executive director;
- – a review of the methodology of investigations, and how proceedings are instituted against individuals, recognising proper accountability but distinguishing between mistake and culpability;
- – business organisations and other interested parties to undertake an educational exercise to ensure that the proper role of the NED is set out, understood and articulated.
Non-executive directors should be reminded of their duties and responsibilities and given clarity as to society’s expectations. The answer is not further liabilities. Knee-jerk reactions to scandal are unhelpful – not all failures involve scandal and some, in the normal course of business, afford opportunity to learn lessons. We should clarify and celebrate. The NED is a bridge between business and society – ensuring proper corporate governance while playing a wider role in societal leadership. We need people of character and experience to discharge this role. With this clarity, we can say that the non-executive director is indeed worth saving.
Notes to Chapter 5
[1] Financial Reporting Council, ‘UK Corporate Governance Code’, London: FRC, January 2024; see https://media.frc.org.uk/documents/UK_Corporate_Governance_Code_2024_kRCm5ss.pdf.