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摘要:非執行董事的职能在公司治理中的地位显得越来越重要了，但是怎样才能使得非执行董事在公司治理中发挥作用，同时又保持独立性，这个问题一直有不少学者在研究。本文认为非执行董事在好的公司治理中主要有以下职能：改进公司治理结构，对公司中某些特定利益的保护以及抑制其他董事滥用权力，并且论述了非执行董事的构成，资历和个人贡献这些因素分别对非执行董事作用的发挥产生很大影响。
关键词:非执行董事 公司治理 作用
1.Introduction
In recent years,since the ineffective non-executive directors in company not only affect the company but also have significant impact on the entire society,the heated debate is on the effectiveness of nonexecutive directors function and this essay will concentrate on the paradigmatic notion of “good” corporate governance in terms of the role of non-executive directors.This essay will be divided into two sections to discuss the function of non-executive directors in good corporate governance.The first section will summarize the role of nonexecutive directors and the requirements of nonexecutive directors in different reports and briefly explain it.Moreover,the essay will outline some paradigmatic notions of “good” corporate governance and discuss the strengths and weakness of these paradigms with cases.Finally,I will give some view on good corporate governance in terms of the role of nonexecutive directors.
2.The Role of the nonexecutive directors
The nonexecutive directors have two main functions in corporate governance: monitoring the activity of executive directors and playing a role in the development of strategy.Nevertheless,the Higgs Review (2003) gives more details on the role of a non-executive director as follow:
Constructively challenge and contribute to the performance of strategy;
Scrutinize performance of management and monitor reporting of performance;
Verify that financial information is accurate and financial controls and risk management robust and defensible;
Determine the remuneration of executive directors.
To play a role in the appointment removal of senior management and in determining the succession plan.
Also,Tyson Report (2003) suggests some similar role of nonexecutive directors as follow:
Provide advice and direction to a company’s management in the development and evaluation of its strategy;
Monitor the companys management in strategy implementation and performance;
Monitor the companys legal and ethical performance;
Monitor the veracity and adequacy of the financial and other company information provided to investors and other stakeholders;
Assume responsibility for appointing evaluating and,where necessary,removing senior management; and plan succession for top management positions.
As we can see from above,the Tyson report and Higgs review both emphasize the functions of monitoring,auditing and contribution in different aspects.Moreover,there is a nonnegligible role of non-executive directors which is helping to reduce the notorious conflicts of interest between shareholders and company management.However,it raises a concern about how to enhance the effectiveness of these roles of non-executive directors in “good” corporate governance.There are some ways to enhance the effectiveness of these roles of nonexecutive directors.
3.Paradigmatic notion of “good” corporate governance
The current paradigmatic approaches to ‘good’ corporate governance are focus on the interlinked roles of internal control and risk management procedures,internal audit and external audit,overseen and co-ordinated by a formal structure of board committees (audit committee,nomination committee,and remuneration committee).In terms of non-executive directors in board,there are various methods to support the effectiveness of roles of non-executive directors such as independence,personal contribution and diversification in “good” corporate governance.This section discusses the strengths and weaknesses of these paradigms to see whether they lead to truly good corporate governance or not.
(1)The independence
Independence of nonexecutive directors might have significant impact on the effectiveness of their roles.However,the definition of independent non-executive directors is stated as follow:
A nonexecutive director is considered independent when the board determines that the director is independent in character and judgment and there are no relationships or circumstances which could affect,or appear to affect,the director’s judgment.
(Higgs Report,2003,P.37)
According to Cadbury Report (1992),non-executive directors should offer a view on performance,corporate strategy and appointments independently.Moreover,the majority of non-executive directors should be independent of management and free from any relationship that might affect their independence.Several methods can be suggested to enhance the independence of the non-executive directors.For instance,in order to enhance their independence,the decision of appointing non-executive directors should be taken seriously via the formal process (using nomination committee) and also the remuneration of non-executive directors is a significant decision should be taken by the remuneration committee,otherwise it might cause bias during appointment and remuneration.Furthermore,strengthening non-executive independence encourages them not to participate in the share option schemes since it increases the difficulty to balance the interest between managers and shareholders.In the past,there are some cases of perceived governance failure due to lack of independence of non-executive directors.According to Solomon J.(2007),if the relationship of non-executive directors and other stakeholders are not independent,it will raise the conflict of interest.For example,Lord Wakeham who is a member of audit committee in Enron,and he also has a consulting contract with Enron.Also,Wendy Gramm was the chairman of Enron’s audit committee and her husband,Phil Gramm,a senator,received substantial political donations from Enron.These kinds of interest conflicts show that it fails to exercise the real independence of non-executive directors.Furthermore,according to Gwilliam D and Marnet O,since those non-executive directors in Enron are having interest conflicts,they either have great contribution to performing their role of internal control and monitoring or rely on the view of executive directors.So the executive directors can control the executive activities and the committee.Another example is thatthe Hollinger board is essentially consisted of friends of Conrad Black including the aging Henry Kissinger and Anne-Marie Kravis,wife of a buy-out billionaire who is completely impotent in terms of either identifying or controlling his activities.This would result in the powerlessness of the board or even affect the failure of Enron.However,the independence of non-executive directors might avoid some of the interest conflicts among them and might lead them to engage more in internal control and their monitoring role.Thus,independence of non-executive directors on board has significant impact on ensuring the effectiveness of their role in corporate governance.
(2)Personal Attributions
Personal attributions of non-executive directors might great contribution to the effectiveness of their role while they are monitoring insider directors and contributing to corporate strategy.According to Higgs Report (2003),since non-executive directors should listen sensitively to the views of others both inside and outside the broad,and have to debate constructively,they are required to be sound in judgment.Further,in order to increase their credibility and reduce probability of different understanding of the knowledge between non-executive and executive directors,non-executive directors must have the knowledge to take their responsibility and it also requires them to be familiar with the business,the environment and the issue which the company are facing and will face.Apart from these,interpersonal skills are an essential characteristic of the effective non-executive director,since much of the effectiveness is determined by exercising influence rather than giving orders and requires the establishment of high levels of trust.Also,the non-executive directors should be able and willing to query and survey since it can raise concerns in some specific issues and improve performance of executive.Meanwhile,integrity of non-executive directors should be the basic requirement of their characteristic.For example,the unethical activities in Enron indicate that the non-executive directors in Enron still lack personal characteristics especially in moral and in integrity,although these are the basic requirements of them.Although it is hard to detect whether they are fulfilling all the requirements or not which will need further study on it,some of the personal attributions should be essential requirements of non-executive directors since it has significant effect on the effectiveness of the role of non-executive directors.
(3)The proportion of non-executive directors on boards
The proportion of non-executive directors on board might have significant effect on their effectiveness.In the earlier Cadbury Code,it required that non-executive directors should comprise no less than one third of the board.The 2003 Combined Code revision suggested that the higher proportion of non-executive directors on board can enhance the role of the audit committee in monitoring the integrity of the company’s financial reporting,reinforcing the independence of the external auditor and reviewing the management of financial and other risks.Later on,in Higgs Report,it recommended that non-executive directors should even comprise at least half the board to have more support to ensure them to exercise their role and also ensure the effectiveness of their performance.Also no-one should sit on all three main board committees (audit,remuneration and nomination) (except in small companies).However,in the Hampel Report,it indicates that the non-executive directors’ role of monitoring which has been overemphasized is misleading.Some (limited and dated) US evidence suggests that whereas there is a positive price reaction to inside executive director appointments (Rosenstein and Wyatt,1990),and a higher proportion of non-executive directors on the board is associated with weaker performance (Agrawal and Knoeber,1996).For one reason,some of the shareholders believe that independent directors on boards can do harm to corporate governance by reducing entrepreneurship in the business and by weakening board unity.For another reason,they are questioning the ability of non-executive to fulfil their wide range of roles which expected by them and think that is a costly and risk taking action.Another reason is that for improving the performance,outside directors were often joined in board while the performance is bad (Hermalin and Weisbach,1988).For example,the WorldCom company,although there are high proportions of non-executive directors in board of WorldCom,the company failed by lack of regular procedures in the internal audit department corresponding to the auditing,a lack of co-operation between internal auditors,external auditors and the audit committee,which is supported by the bankruptcy examiner.More specific,in the audit committee of WorldCom,they have 4 non-executive directors with different experience and skill and the committee met 3 to 5 times a year.In other words,the committee has high proportion of non-executive directors and has more meeting (more than what?).It seems to have good corporate governance but what these non-executive do and whether they fulfil their auditing role might be a question.The non-executive directors in audit committee of WorldCom would only receive the information pack or might be presentation (be presentation? I don't get it) from the internal auditors and these information are just executive summaries of audit report,not the total reports.Either the limited communication between external auditors and internal auditors or absence of documents would confine the external non-executive directors to conduct audit and offer reassurance to the audit committee.Then they might not have any input to change that plan,which means it might lead to the non-executive directors highly depend on the plan made by internal auditors.Thus,it is not the higher proportion of the non-executive directors in board,the better contribution to the corporate governance.In terms of the appropriate proportion of non-executive directors in board,it will depend on each firm’s specific situations and the shareholder’s views in different countries such as most of the companies in USA have higher proportion of non-executive directors on board than those in UK.We cannot judge whether the company has good corporate governance simply by the proportion of non-executive directors on board.However,some of the disadvantage of high proportion could be release such as the concern of misguiding by excessive non-executive directors might solved by training them more frequently.Diversification
Tyson report (2003) called for greater diversity in the skill,background and experience of non-executive directors which itwas seen as both improving boardroom effectiveness and improving relationships with corporate stakeholders including customers,employees and shareholders.The Tyson Report indicated the need to employ more transparent and more rigorous searches for non-executive directors in knowledge,skills,experience,gender,race,nationality and age.Nevertheless,it had to diversify appropriately since there are some constraints including board size,existing board membership,growing responsibilities and liabilities.However,the weakness of diversity in the skill and experience will raise some problems.Firstly,the non-executive directors might not be able to comprehend the complexities of the transactions entered into and the manner in which they are reported.Executive directors would control information flows by executive management.Secondly,diversification might lead to the reducing of the power of board unity.
4.Conclusion
In conclusion,the main roles of non-executive directors are auditing,monitoring and giving constructive contribution to committees (audit committee,nomination committee,remuneration committee and so forth).Also,there are some ways such as the increasing of independence,proportion and diversification of non-executive directors and requiring some personal attribution to either ensuring them to fulfill their role or strengthening the effectiveness.However,whether these approaches would lead to “good” governance in terms of enhancing the effectiveness of the role of non-executive directors or not might need to be considered in detail.The consideration might include its own specific,individual optimal profile for non-executive board membership.
Bibliography:
［1］Agrawal A.,& Knoeber,C.(1996).Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders.Journal of Financial and Quantitative Analysis,31(3),377-397
［2］Benjamin E.,& Michael S.(1988).The determinants of board composition.The RAND Journal of Economics,23,65-73
［3］Cadbury Report (1992).Financial Aspects of Corporate Governance (aka the Cadbury Report) Caution - PDF
［4］Combined Code (2003).http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf
(責任编辑：王平勇)
关键词:非执行董事 公司治理 作用
1.Introduction
In recent years,since the ineffective non-executive directors in company not only affect the company but also have significant impact on the entire society,the heated debate is on the effectiveness of nonexecutive directors function and this essay will concentrate on the paradigmatic notion of “good” corporate governance in terms of the role of non-executive directors.This essay will be divided into two sections to discuss the function of non-executive directors in good corporate governance.The first section will summarize the role of nonexecutive directors and the requirements of nonexecutive directors in different reports and briefly explain it.Moreover,the essay will outline some paradigmatic notions of “good” corporate governance and discuss the strengths and weakness of these paradigms with cases.Finally,I will give some view on good corporate governance in terms of the role of nonexecutive directors.
2.The Role of the nonexecutive directors
The nonexecutive directors have two main functions in corporate governance: monitoring the activity of executive directors and playing a role in the development of strategy.Nevertheless,the Higgs Review (2003) gives more details on the role of a non-executive director as follow:
Constructively challenge and contribute to the performance of strategy;
Scrutinize performance of management and monitor reporting of performance;
Verify that financial information is accurate and financial controls and risk management robust and defensible;
Determine the remuneration of executive directors.
To play a role in the appointment removal of senior management and in determining the succession plan.
Also,Tyson Report (2003) suggests some similar role of nonexecutive directors as follow:
Provide advice and direction to a company’s management in the development and evaluation of its strategy;
Monitor the companys management in strategy implementation and performance;
Monitor the companys legal and ethical performance;
Monitor the veracity and adequacy of the financial and other company information provided to investors and other stakeholders;
Assume responsibility for appointing evaluating and,where necessary,removing senior management; and plan succession for top management positions.
As we can see from above,the Tyson report and Higgs review both emphasize the functions of monitoring,auditing and contribution in different aspects.Moreover,there is a nonnegligible role of non-executive directors which is helping to reduce the notorious conflicts of interest between shareholders and company management.However,it raises a concern about how to enhance the effectiveness of these roles of non-executive directors in “good” corporate governance.There are some ways to enhance the effectiveness of these roles of nonexecutive directors.
3.Paradigmatic notion of “good” corporate governance
The current paradigmatic approaches to ‘good’ corporate governance are focus on the interlinked roles of internal control and risk management procedures,internal audit and external audit,overseen and co-ordinated by a formal structure of board committees (audit committee,nomination committee,and remuneration committee).In terms of non-executive directors in board,there are various methods to support the effectiveness of roles of non-executive directors such as independence,personal contribution and diversification in “good” corporate governance.This section discusses the strengths and weaknesses of these paradigms to see whether they lead to truly good corporate governance or not.
(1)The independence
Independence of nonexecutive directors might have significant impact on the effectiveness of their roles.However,the definition of independent non-executive directors is stated as follow:
A nonexecutive director is considered independent when the board determines that the director is independent in character and judgment and there are no relationships or circumstances which could affect,or appear to affect,the director’s judgment.
(Higgs Report,2003,P.37)
According to Cadbury Report (1992),non-executive directors should offer a view on performance,corporate strategy and appointments independently.Moreover,the majority of non-executive directors should be independent of management and free from any relationship that might affect their independence.Several methods can be suggested to enhance the independence of the non-executive directors.For instance,in order to enhance their independence,the decision of appointing non-executive directors should be taken seriously via the formal process (using nomination committee) and also the remuneration of non-executive directors is a significant decision should be taken by the remuneration committee,otherwise it might cause bias during appointment and remuneration.Furthermore,strengthening non-executive independence encourages them not to participate in the share option schemes since it increases the difficulty to balance the interest between managers and shareholders.In the past,there are some cases of perceived governance failure due to lack of independence of non-executive directors.According to Solomon J.(2007),if the relationship of non-executive directors and other stakeholders are not independent,it will raise the conflict of interest.For example,Lord Wakeham who is a member of audit committee in Enron,and he also has a consulting contract with Enron.Also,Wendy Gramm was the chairman of Enron’s audit committee and her husband,Phil Gramm,a senator,received substantial political donations from Enron.These kinds of interest conflicts show that it fails to exercise the real independence of non-executive directors.Furthermore,according to Gwilliam D and Marnet O,since those non-executive directors in Enron are having interest conflicts,they either have great contribution to performing their role of internal control and monitoring or rely on the view of executive directors.So the executive directors can control the executive activities and the committee.Another example is thatthe Hollinger board is essentially consisted of friends of Conrad Black including the aging Henry Kissinger and Anne-Marie Kravis,wife of a buy-out billionaire who is completely impotent in terms of either identifying or controlling his activities.This would result in the powerlessness of the board or even affect the failure of Enron.However,the independence of non-executive directors might avoid some of the interest conflicts among them and might lead them to engage more in internal control and their monitoring role.Thus,independence of non-executive directors on board has significant impact on ensuring the effectiveness of their role in corporate governance.
(2)Personal Attributions
Personal attributions of non-executive directors might great contribution to the effectiveness of their role while they are monitoring insider directors and contributing to corporate strategy.According to Higgs Report (2003),since non-executive directors should listen sensitively to the views of others both inside and outside the broad,and have to debate constructively,they are required to be sound in judgment.Further,in order to increase their credibility and reduce probability of different understanding of the knowledge between non-executive and executive directors,non-executive directors must have the knowledge to take their responsibility and it also requires them to be familiar with the business,the environment and the issue which the company are facing and will face.Apart from these,interpersonal skills are an essential characteristic of the effective non-executive director,since much of the effectiveness is determined by exercising influence rather than giving orders and requires the establishment of high levels of trust.Also,the non-executive directors should be able and willing to query and survey since it can raise concerns in some specific issues and improve performance of executive.Meanwhile,integrity of non-executive directors should be the basic requirement of their characteristic.For example,the unethical activities in Enron indicate that the non-executive directors in Enron still lack personal characteristics especially in moral and in integrity,although these are the basic requirements of them.Although it is hard to detect whether they are fulfilling all the requirements or not which will need further study on it,some of the personal attributions should be essential requirements of non-executive directors since it has significant effect on the effectiveness of the role of non-executive directors.
(3)The proportion of non-executive directors on boards
The proportion of non-executive directors on board might have significant effect on their effectiveness.In the earlier Cadbury Code,it required that non-executive directors should comprise no less than one third of the board.The 2003 Combined Code revision suggested that the higher proportion of non-executive directors on board can enhance the role of the audit committee in monitoring the integrity of the company’s financial reporting,reinforcing the independence of the external auditor and reviewing the management of financial and other risks.Later on,in Higgs Report,it recommended that non-executive directors should even comprise at least half the board to have more support to ensure them to exercise their role and also ensure the effectiveness of their performance.Also no-one should sit on all three main board committees (audit,remuneration and nomination) (except in small companies).However,in the Hampel Report,it indicates that the non-executive directors’ role of monitoring which has been overemphasized is misleading.Some (limited and dated) US evidence suggests that whereas there is a positive price reaction to inside executive director appointments (Rosenstein and Wyatt,1990),and a higher proportion of non-executive directors on the board is associated with weaker performance (Agrawal and Knoeber,1996).For one reason,some of the shareholders believe that independent directors on boards can do harm to corporate governance by reducing entrepreneurship in the business and by weakening board unity.For another reason,they are questioning the ability of non-executive to fulfil their wide range of roles which expected by them and think that is a costly and risk taking action.Another reason is that for improving the performance,outside directors were often joined in board while the performance is bad (Hermalin and Weisbach,1988).For example,the WorldCom company,although there are high proportions of non-executive directors in board of WorldCom,the company failed by lack of regular procedures in the internal audit department corresponding to the auditing,a lack of co-operation between internal auditors,external auditors and the audit committee,which is supported by the bankruptcy examiner.More specific,in the audit committee of WorldCom,they have 4 non-executive directors with different experience and skill and the committee met 3 to 5 times a year.In other words,the committee has high proportion of non-executive directors and has more meeting (more than what?).It seems to have good corporate governance but what these non-executive do and whether they fulfil their auditing role might be a question.The non-executive directors in audit committee of WorldCom would only receive the information pack or might be presentation (be presentation? I don't get it) from the internal auditors and these information are just executive summaries of audit report,not the total reports.Either the limited communication between external auditors and internal auditors or absence of documents would confine the external non-executive directors to conduct audit and offer reassurance to the audit committee.Then they might not have any input to change that plan,which means it might lead to the non-executive directors highly depend on the plan made by internal auditors.Thus,it is not the higher proportion of the non-executive directors in board,the better contribution to the corporate governance.In terms of the appropriate proportion of non-executive directors in board,it will depend on each firm’s specific situations and the shareholder’s views in different countries such as most of the companies in USA have higher proportion of non-executive directors on board than those in UK.We cannot judge whether the company has good corporate governance simply by the proportion of non-executive directors on board.However,some of the disadvantage of high proportion could be release such as the concern of misguiding by excessive non-executive directors might solved by training them more frequently.Diversification
Tyson report (2003) called for greater diversity in the skill,background and experience of non-executive directors which itwas seen as both improving boardroom effectiveness and improving relationships with corporate stakeholders including customers,employees and shareholders.The Tyson Report indicated the need to employ more transparent and more rigorous searches for non-executive directors in knowledge,skills,experience,gender,race,nationality and age.Nevertheless,it had to diversify appropriately since there are some constraints including board size,existing board membership,growing responsibilities and liabilities.However,the weakness of diversity in the skill and experience will raise some problems.Firstly,the non-executive directors might not be able to comprehend the complexities of the transactions entered into and the manner in which they are reported.Executive directors would control information flows by executive management.Secondly,diversification might lead to the reducing of the power of board unity.
4.Conclusion
In conclusion,the main roles of non-executive directors are auditing,monitoring and giving constructive contribution to committees (audit committee,nomination committee,remuneration committee and so forth).Also,there are some ways such as the increasing of independence,proportion and diversification of non-executive directors and requiring some personal attribution to either ensuring them to fulfill their role or strengthening the effectiveness.However,whether these approaches would lead to “good” governance in terms of enhancing the effectiveness of the role of non-executive directors or not might need to be considered in detail.The consideration might include its own specific,individual optimal profile for non-executive board membership.
Bibliography:
［1］Agrawal A.,& Knoeber,C.(1996).Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders.Journal of Financial and Quantitative Analysis,31(3),377-397
［2］Benjamin E.,& Michael S.(1988).The determinants of board composition.The RAND Journal of Economics,23,65-73
［3］Cadbury Report (1992).Financial Aspects of Corporate Governance (aka the Cadbury Report) Caution - PDF
［4］Combined Code (2003).http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf
(責任编辑：王平勇)