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.
We will work out through these recommendations and critically analyse the possible impact on our system of corporate governance. However, before discussing these issues we need to consider the general characteristics of English boards and how the earlier reviews have changed the assessment of corporate structure...
[...] However, Enron had a specialised audit committee of independent directors but it nonetheless failed to detect and correct accounting irregularities Critical view of the reform First of all, critics concerned the task of vesting too much power in the hands of non-executive directors. is a little odd that these executive magicians' are expected to fulfil two such different roles: entrepreneurial assistant and policeman. The reforms Higgs proposes may give non-executive directors a little more influence. But they cannot resolve the paradoxes inherent in the system' says Michael Brett. These paradox rely on the distinction between entrepreneurial property company and large mature property company. [...]
[...] Besides, issues such as the costs of implementing the proposals may reduce that initial enthusiasm. Certainly larger boards seem likely, given the need to have at least half of the membership made up of independent non- executives. Remuneration costs will increase as a result of the increased numbers of non-executives and in the light of the detailed tasks to be undertaken by the nomination, remuneration and audit committees. An army of human resource and recruitment agencies may be expected to be used in the appointment and training processes. [...]
[...] Derek Higgs, “Non-executive directors: Consultation” (August 2002), Tolley's Company Law and Insolvency. Para Paul Burke, Higgs review”, Comp. Law 162. Referred to in the media as a "SID". Freshfields Bruckhaus Deringer, ”Higgs report: a more important role for non-executive directors” 17 February 2003. Michael Brett It doesn't help to leash the top dogs” (2003) Gazette February. 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. [...]
[...] First, directors are under a common law duty to exercise care and skill in the conduct of their management functions. Historically, courts have been reluctant to impose liability on directors for negligence and had adopted a more tolerant view on directors' conduct. In Re City Equitable Fire Insurance Co, Romer J stated that: director need not exhibit in the performance of his duties a greater degree of skill than may be reasonably be expected from a person of his knowledge and experience”. [...]
[...] boards” (2000) ICCLR. Adolf Berle, Jr. and Gardner C. Means, The Modern Corporation and Private Property (New York: Macmillan, 1932), p Ezzamel and Watson, “Wearing two hats: the conflicting control and management role of non-executive directors”. Keasey, Thompson and Wright, Corporate governance economic, Management and financial issues (1997) 54. J. Tobin, squeeze on directors- inside is out Bus. Law 1707 (1994). J Ipp diligent director” (1997), Comp. Law. [...]
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