In March 2018, NEDonBoard hosted a conference. Jeremy Small addressed the audience on the importance of effective corporate governance and the role of the NED sitting in the boardroom.
What is corporate governance?
Corporate governance is the structure and processes designed to create long-term value. There are five main factors affecting corporate governance that are crucial to any organisation’s corporate governance success.
1. The Corporate Governance Code
he UK Corporate Governance Code has evolved from its original formulation produced in 1992 by the Cadbury Committee. While the 1992 edition of the code was quite succinct and focused on control and accountability, the current version is much broader. But failures and scandals have continued while the Corporate Governance Code has been meaningfully strengthened.
As Carillion’s collapse illustrates, a company can have extremely sophisticated corporate governance but things may still go wrong. Compliance with the Corporate Governance Code is simply not sufficient. There are other factors affecting corporate governance that must be considered.
2. Behaviour and culture
3. Skills, experience, integrity
4. A clear understanding of what the NED role entails
5. A reminder of the directors’ statutory duties
The NED should not only follow the provisions of the Corporate Governance Code. He/she must remain focused on the directors’ statutory duties, which are defined in the Company Act 2006. The duties of directors apply to all directors, not only non-executive and include notably:
- Section 172: Duty to promote the success of the company
- Section 173: Duty to exercise independent judgment
- Section 174: Duty to exercise reasonable care, skill and diligence
- Section 175: Duty to avoid conflicts of interest
Corporate governance is about more than ticking boxes
It is easy for NEDs to overlook the above requirements by being busy performing “ticking the box” exercises to comply with the Corporate Governance Code. NEDs who really understand the business of a company are very well placed to conduct their role effectively and to help the company achieve effective corporate governance.
Summary written by Laura Marianello and Elise Perraud
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