Effectiveness of Non-Executive Directors Essay

Effectiveness of Non-Executive Directors Essay

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The effectiveness of non-executive directors is becoming to be seen as critical for the contribution to the effectiveness of corporate governance in providing investor protection.
Relevant situational and sectoral experience enhances the effectiveness of non-executive directors. Jebb (1998) cited in Ahwireng-Obeng, Mariano and Viedge (2005) suggests that it is a better strategy to hire non-executive directors who have experience in similar as well as other sectors and situations that the company is likely to face than search for a particular expertise in a director. According to Pincombe (2000), this enables the utilisation of specialist skills in different fields and the broadening of experience (Ahwireng-Obeng, Mariano and Viedge, 2005).
To a certain extent, the tenure of service also has impact on the effectiveness of non-executive directors. Feldman (1992) is of the view that a board that services a business well today may not be qualified to lead it five years from now as markets and products evolve. Therefore, the appointments of non-executive directors should be for a specific term and new members should be appointed as and when needed. One suggestion is that by serving for more than ten years, the board member tends to become too close to senior management to provide objective oversight (Ahwireng-Obeng, Mariano and Viedge, 2005). However, this could provide the in-depth knowledge and institutional memory that a new board member has to work hard to acquire (Fleming, 1998 cited in Ahwireng-Obeng, Mariano and Viedge, 2005).
As for the selection and appointment, “good boards do not just ‘happen’; they are carefully constructed working teams” (Vennat, 1995). In other words, it is by selecting and developing appropriate indiv...

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...m their duties, particularly those sitting on the Nominations Committee, Remuneration Committee and Audit Committee on an irregular basis, meeting only a few times a year (Pass, 2008). Due to limited time of involvement, non-executive directors could be too "remote" from internal decision-making processes to make an effective contribution and lack of information. The effectiveness of non-executive directors would be undermining when they are uninformed about the challenges they face. Hurley (2000) cited in Ahwireng-Obeng, Mariano and Viedge (2005) suggests that making the following list of information available to non-executive directors can contribute to their focus and productivity: board policies, committee guidelines, board minutes, authority annotations, contract summaries, organisational charts, member surveys and analyses, and programme or project analyses.

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