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This article was originally published by the Board Leadership journal who agreed to it being made available on Simmons & Simmons elexica and nextgennednetwork.com.
Corporate governance has not prevented some spectacular corporate collapses/failures. But society’s expectations of company boards are ever increasing, in part fuelled by these corporate catastrophes. Meanwhile, the label ‘non-executive’ is, I think, no longer apt to describe the role of a non-executive director (NED): the description is not aligned with these expectations and, worse, supports a notion that the effectiveness of NEDs is limited to their conduct in the boardroom. I think NEDs would be better called ‘supervisory directors’.
NEDs: Their role in corporate collapses
Both executive and non-executive directors have, under UK law, the same duty to exercise reasonable care, skill and diligence. The scope of the duty varies according to the director’s role. The courts have accepted that the non-executive’s role requires, among other matters, independence of judgement and supervision of executive management. I think this means that describing non-executive directors as supervisory directors is closer to the substance of their role. But, whatever the label, these directors haven’t prevented various corporate collapses and won’t necessarily be able to prevent them occurring in the future. The collapses described below have been attributed to failures by the board to instil an appropriate culture throughout the organisation and, in some cases, alleged failures by the board/NEDs to supervise effectively, sometimes due to the NEDs’ lack of expertise.