Table of Contents
Report on Non-executive directors.
Organization Align with Non-Executive Directors.
Success and or Limitations of Non-Executive Directors.
Corporate Governance Issues.
The aim of the report is to conduct a review as a corporate governance issue on non-executive directors. The report will focus how the organization is able to successfully align non-executive directors with the entity's objectives. Moreover, the report will discuss the strategies that led non-executive directors to success and or any limitations from a governance perspective. Besides this, it will identify corporate governance issues that lead to entities being criticized or being less successful signing non-executive directors. The report will also provide the reasoning and will find ways to address them. In addition, the report will also consist explicit recommendation to the board on the benefits and limitations of including non-executive director in the board of the entity.
There non-executive directors are those which are not the part of the team of executive but they are the members of boards of directors. These types of directors are involved in planning exercise and policymaking but do not engage in organization day to day management. They have responsibilities which include executive director monitoring and acting in the interest of the company stakeholders (Adithipyangkul and Leung 2018). They are also called as outside directors or independent directors or external directors. The main role these directors is to build public relations along with understanding the company’s interest then the executive directors with greater objectivity, providing improvements and creative contribution to the boards of directors by objective criticism and dispassionate. They are aligned with the organization to challenge the performance and direction of its existing team as well as for the company. They are equally responsible for failure or success of a particular business or organization. They take various decisions for the wellbeing of the organization but their role, responsibilities and potential liabilities are different from that of executive directors (Australian Institute of Directors 2016).
They are also not regarded as employees but they are paid for their work or service in the organization. They support organization by providing service that involve concern about sensitive issue like executive director and other senior manager salary. They are involved in the committees that are responsible for such activities. The non-executive director’s align with the organization through handling the responsibilities that includes appointing the boards of directors, ensuring all the audits requirements are satisfied, communicating with third parties, remuneration of the executive directors, effectively solving organizational problems and issues, and contributing to the company’s strategic direction (Durbin, Schedlitzki, Adelopo and Warren 2020). All these responsibilities, if properly managed, lead an organization for better performance in the competitive world which further results in maximizing the shareholders wealth. Some of the key responsibilities of non-executive director that helps in better growth of organization performance and revenue involves the following things:
Strategy: Non-executive directors contribute and continuously challenge the development of strategies. The non-executive directors has better, clear and wider vies of factors that are affecting the environment of the business as they are the external members of the organization (Federico 2017).
Performance: Non-executive directors inspect the management performance in meeting the organization goals and objectives. When necessary, they also monitor management team and removes senior managers for succession planning (Goergen, Mira and O'Sullivan 2018).
Risks: This directors also checks whether the financial control and information is accurate or not along with ensuring that risk management system of the organization is defensible and robust or not (Federico 2017).
People: Making contacts with public and involvement in public relation is one of the roles of non-executive director in order to provide benefit to organization externally. They help the organization and board of directors by making contact with network of people that are useful for the organization business (Durbin, Schedlitzki, Adelopo and Warren 2020).
There are various factors that led to success and or limitation of non-executive director. In this competitive world, most the business faces lots of internal as well as external issues that cannot be solved by the management team or board of directors of the business. This challenges that are faced by the organization are very complex, it may include staff development, change management and other traditional issues (Goergen, Mira and O'Sullivan 2018). Here, is the main purpose where the organization needs a non-executive director. These non-executive directors have their personal interest in the company. They provide honest and accurate judgements and acts in good faith. They resolve disputes between executive directors even if the dispute is above their expertise and experience. Non-executive directors play a very important role in organization in order to strike the right balance in the business by selecting executive directors (Goh and Gupta 2016).
Even being an external member, non-executive directors does things that are in favor of the business. There are lots of challenges that a non-executive director has to face and overcoming these challenges make them successful. The factors that led a non-executive director successful is their attitude of making things happen and getting stuff done so that the organization performance can be increased. They are the true critic for the organization performance (Knight 2020). Appointing the boards of directors, ensuring all the audits requirements are satisfied, communicating with third parties, remuneration of the executive directors, effectively solving organizational problems and issues, and contributing to the company’s strategic direction leds non-executive directors to be successful (Goh and Gupta 2016). Besides this, they have some limitations too, which includes poor liability and remuneration in law may reduce non-executive director potential, qualification of non-executive director and lack of trust affecting board operations.
Corporate governance play an important role in setting relationship between the shareholders, boards of directors, management team and other stakeholders of the company. It provides a structure to the company through which the company’s objectives are set and monitoring performance are determined. Some of the corporate governance are as follows:
Conflict of interest: It is vital to avoid conflict of interest. Within the framework, conflict of interest occurs when controlling member of the organization has different financial interest that differs from the goals and objective of the business (Majumder, Akter and Li 2017). For example, a solar company having a board of member who have stock of sustainable amount in Oil Company has a conflict of interest as the organization in which the member work represent development of clean energy, but the members personal financial stake is in the oil industry success.
Oversight issues: Effective corporate governance requires that the company’s board of directors have oversight on the practices and procedures of company (Tricker 2019). Without this oversight, it may happen that the staff of company might violate federal laws or state laws, as a result they may have to pay fine to regulatory agencies. It may also result in damage of reputation of the company. Oversight is a broader term used for achieving the objectives of the corporation (Tricker 2019).
Accountability issues: These issues are important for effectiveness of corporate governance. As a system of check and balance, every level of organization from top to bottom, that is, from executives to employees everyone should be accountable and should report to system. All the actions within the corporation, shareholders and the public is accountable. Without this, it may happen that, one section of corporation might endanger the company’s entire success and may result in causing the stockholders to not to invest further in the company (Mira, Goergen and O'Sullivan 2019).
Transparency: The Company should make an accurate and self-describing reports that show the losses and profit of the company, and this reports and figure should be made available for those who invests in the company. False representation to stakeholder may result in loss of their interest in the company for further investment and it can also ruin the relationship with other stockholders also (Majumder, Akter and Li 2017).
Ethics Violation: It is an ethical duty of all the executive and non-executive directors of board to make decisions on the stockholders best interest. In addition, building better community in which the corporation operates and protecting the social welfare is the ethical duty of corporation (Tricker 2019).
Having non-executive directors in board have number of benefits as they can provide genuine feedback on the organization performance. Some of the benefits of non-executive directors include monitoring of organization performance and offering solution and constructive ideas, helps in expanding the company’s intellectual and strategic resources, add additional credibility and experience to the board of the company, act in the best interest of the shareholders, contributes to the company’s strategic plan, helps in ensuring smooth and efficient working of company’s executive directors, and add different point on view to the business for dad to day operations (Mira, Goergen and O'Sullivan 2019). Limitations are not as much on adding non-executive directors as they does not work as an employee for the organization.
It can be concluded that as a corporate governance issue, a brief evaluation on non-executive directors is carried out. The report has briefly discussed from a governance perspective, the strategies that led non-executive directors to success along with corporate governance issues that lead to entities being criticized or being less successful signing non-executive directors. Moreover, recommendations are also provided to the boards on the benefits and limitations of including non-executive directors in the boards of the company. The non-executive director’s align with the organization through handling the responsibilities that includes appointing the boards of directors, ensuring all the audits requirements are satisfied, communicating with third parties, remuneration of the executive directors, effectively solving organizational problems and issues, and contributing to the company’s strategic direction. All these responsibilities, if properly managed, lead an organization for better performance in the competitive world which further results in maximizing the shareholders wealth.
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Durbin, S., Schedlitzki, D., Adelopo, I. and Warren, S. 2020. The value of non-executive directors to small and medium size enterprises, including a gender perspective. Available at https://uwe-repository.worktribe.com/output/873742
Federico, R. 2017. Some Notes on the Role of Non-executive Directors of Banks. Banca Impresa Società, (3), pp.431-470.
Goergen, M., Mira, S. and O'Sullivan, N. 2018. The Market for Non-Executive Directors: Does Acquisition Performance Influence Future Board Seats? European Corporate Governance Institute (ECGI)-Finance Working Paper, (551).
Goh, L. and Gupta, A. 2016. Remuneration of non-executive directors: Evidence from the UK. The British Accounting Review, 48(3), pp.379-399.
Knight E. 2020. Messiah Musk Tesla disciples don't care if he's not governance god', Sydney Morning Herald, pp. 13.
Majumder, M.T.H., Akter, A. and Li, X. 2017. Corporate governance and corporate social disclosures: a meta-analytical review. International Journal of Accounting & Information Management, 25 (4), pp. 434-458
Mira, S., Goergen, M. and O'Sullivan, N. 2019. The market for non‐executive directors: does acquisition performance influence future board seats? British Journal of Management, 30(2), pp.415-436.
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Tricker, B. 2019. Corporate governance principles, policies and practices. 4th edition London: Oxford University Press
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