INTERNATIONAL FINANCIAL REPORTING ESSAY ASSIGNMENT
Non-executive Directors (NEDs) are external members of the company’s board of directors who are not involved in the executive management team, however they have the same legal responsibilities with inside directors. NEDs are also known as ‘external directors’ or ‘independent directors’. A non-executive director is a member of the company’s board of directors and they are responsible for the company’s success. NEDs do not have any connection with daily management of the organization because they are not a full or part-time employee of the company, however; a non-executive director is knowledgeable about planning exercise and policymaking. Number of NEDs could vary depending on the size of the company; in a large company there should be a minimum of six non-executive directors whereas in a small company there should be at least two non-executive directors. Non-executive directors are independent directors and they can act independently without asking to any executive director. This essay is going to focus on the corporate governance of NEDs both in general and within the context of board committees. NEDs are vital for identifying solvents and eliminating potential risks; thus ensuring company success. All of these are going to be discussed along this essay by supporting ideas.
Non-executive directors have some general legal responsibilities in the business world. The paramount responsibility is to set the prime aim of the company and ensure that the financial and human resources are taking place in the company in order to meet their goals and objectives and also review the management performance. Apart from this, NEDs have strong knowledge about the potential risks and they know how to go through it. However, if they face any unfamiliar risk, they still know how to co-ordinate the case and avoid those risks harming the company. In other words NEDs are there to forecast the future and prevent companies being harmed. In addition to these, the non-executive directors are willing to involve in developing strategies, participating in the decision-making process of the board committee and to investigate the performance of management whether the concurrent goals and objectives are satisfied. Audit goals could be one of the significant goals as every company is launched to make profits; thus NEDs have to be in full control of ensuring that audit requirements are satisfied. Furthermore, they are responsible for identifying solutions for problems that could arise because they are the brains who would take the company a step forward. Moreover, NEDs are also responsible for appointing the board of directors and remuneration of the executive directors.
The roles of the non-executive directors have some key elements in the corporate governance for being successful director which are strategy, performance, risk and people.
Being a successful NED belongs to the strategy, performance, risk management and communication with people. The role of the NED should be to develop proposals on company strategies about reinforcement in different segments. Non-executive directors should directly observe the performance management to see how they are doing their job (are they compatible or incompatible with the job) and how they are related with that job, after observation non-executive directors should make a report of performance and focus on improving it. Non-executive directors are not dealing with day-to-day routine work controls but they are dealing with controlling the finished work because they know where to make necessary removing. People. Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors, and have a prime role in appointing, and where necessary removing, executive directors and in succession planning.
Yukar?da 4 ?ey yazd?n, strategy, performance, risk, people. 3unu ac?klad?n people I ac?klamad?n. Ceviremedim bunu sen cevir
Bupa Corporate (2008) argues that Non-executive directors do not meet frequently, they meet time to time as a group without the presence of executive directors and also once a year they meet without the chairmen being present. They are able to desire efficient information to provide better performance for the company by getting advice from professional advisors by using company’s finance. Non-executive directors can work in more than one board of committees and then if they are successful within their jobs they will be advised to other board of committees.
Lindsay C. (2018) says that the ideal non-executive director is apparently, someone who is quiet, knowledgeable and competent.
ICSA The Governance Institute (2002) argues that a NED should have some qualities in terms of characteristics; big picture thinker, governance knowledge, independent mind set, ambassador potential, energy and commitment in the corporate governance. A non-executive director should be a big picture thinker because strategic thinking and critical evaluation ability are vital to administrate and also they need to be knowledgeable about governance knowledge because it is a legal and regulatory framework; they need to know what good governance looks like within a board. Boards require NEDs who can be objective problem solvers. They need to be able to set any personal issues, short-term considerations and personal preferences. An independent mind set also helps NEDs to achieve long-term success and focus on the right data. All organizations are a very outward focus. It is essential that NEDs can represent their organization to shareholders, stakeholders, regulators, government departments that may have an interest and in some cases to the general public and media. The role of a NED can be demanding. NEDs need to have the time to understand their organisation, its market and regulatory environment, competitors and challenges, and keep up-to-date to stay on top of the brief. They also need the energy and resilience to fulfil the role, especially when the going gets tough so that the board can work effectively through difficult circumstances. Cevirme ister ceviremedimNon-executive directors must act in good faith in the company and they must act honestly and responsibly when conducting the affairs of the company. Directors should not be able to use the company’s property information or opportunities for their own benefit. Power restrictions are not acceptable within the board of directors, NEDs should not agree on restricting the power of directors within the board of committee. Thinking about their own benefit and being selfish and ignoring other directors ideas’ could harm the company. Independent judgement could happen only if company’s constitution gives permission or when it is being approved in a general meeting. Directors must exercise the care, skills and diligence that could be done in a reasonable time. Directors must have regard to both his employees and their members.
Iwasaki J. (2015) argues that board committees have specific tasks in the corporate governance; they have to spend their time more efficiently by delegating tasks to committees. Board committees meet in accordance of their task and as stated in the reference conditions. This might be at a specific time of the year or once a year. It is important that board members take into account not only the work of the board, but also the sufficient time to allocate them to the duties of a committee or committees, because board committees are usually composed of a sub-election of the members of the board.
There are also a range of statutory duties that non-executive directors are expected to be aware of. First one is keeping sufficient accounting records and these records may be kept in paper or electronic form. Another one is the most important step in the accounting cycle which is to prepare annual financial statements including the balance sheet, income statement of retained earnings and statement of cash flow. Third one is auditing financial statements because it needs to provide reliability. Also, they are required by law to keep and maintain a number of statutory records and registers. NEDs have to file accurate documents with the registrar of the companies. Moreover, they have duty of disclose personal information and to prepare general meetings for the company’s corporate governance.
Katto J. (2013) who is an independent consultant and experienced non-executive director argues that ‘It is very critical for people who want to get on the ‘non-executive ladder’ to understand that for this role, the organisation is not looking to hire an accountant or a CFO – they are looking to hire someone who is going to help to form and guide the strategic direction of the organisation.’
Well corporate governance is achieved by successful directors. Accordingly, before joining the board, NEDs and Directors have some essential criteria’s which are; they have to be over 18 years of age and a person who is offered as a director may be asked to complete a statement that is not prevented from acting as a director. They should know that they will not be able to pay for their position as a non-executive director but may claim rights for all relevant expenses. They should know they can’t take advantage of the position. Any external interest should be declared. They must understand the role of the board, the board must undertake and accept the ultimate responsibility for carrying out the work of the organization, the solvent which is well managed and the outcome of the establishment. They need to be available for attending board meetings annually approximately 5-12 times and if they are unable to attend to board meetings, they have to give brief statements. Also they should have met with company managers and attempted to read the latest accounts and meeting minutes to have detailed information about the company’s properties, investments, revenues and to learn the financial and policy of the organization and to conduct due diligence checks. They should ensure that they do not represent the interests of any external organization or their own personal interests. Finally, they must be interested or related in the organisation and prepared to act with entirety.
After joining the board, NEDs and Directors still have some essential criteria’s for high quality corporate governance. A director should be aware of the specific duties and obligations that a company owes and they should ensure that the activities of the companies are meticulously performed. They must be smart in commercial and financial way for any situation. They must be able to contribute to the company and able to be a collaborative team player. They should be enthusiastic for being a member of the company and be capable of strategic thinking and creative planning. Finally, they must be resolved in order to set high standards and share responsibility for the results with other managers.
Burke U. (2006) argues that the normal duties of directors concerning conflicts of interest are that directors should not be in a position to conflict with their personal interests and trustee duties. Directors cannot earn personal positions as directors and they should not be appropriate for any business opportunity that the company is actively pursuing for itself or for referral to itself or any other related organization. There are some circumstances where conflicts of interest can occur. First one is, directors failing to disclose interests or potential interests in contracts involving the company. Conflicts may also arise in the context of reserved functions for elected members in the operations of the local authority business of which they are directors of companies. Directors vote on a gain or a potential gain that includes a contact with the director. Directors approaching prospective customer who was customer of old company and referring to current arrangements of customer. Directors sharing information sourced from old company at meetings with new company and taking advantage of business opportunities arising from that information. Cevirme ister
To sum up, it can be evidently seen that NEDs have lots of responsibilities and duties in the business world and it is not simple to cope with them. They need to be patient, considerate and respectful to other people while working. In my opinion, NEDs works hard but they are getting their return by pleasurable income.
Bourke, E. (2008, October 1). British United Provident Association. Available from: https://www.bupa.com/corporate/who-we-are/corporate-governance/role-of-the-non-executive-directorOsborne, S. (2002, November 20). Available from: https://www.icsa.org.uk/knowledge/blog/the-5-essential-qualities-of-a-non-executive-director
Beal, F. (2014, October 1). The legal implications of company directorships. Retrieved from growth business.co.uk Web Site: https://www.growthbusiness.co.uk/the-legal-implications-of-company-directorships-2471777/Burke, U. (2006, January 17). Conflicts Of Interest for Directors. Retrieved from Mason Hayes & Curran: https://www.mhc.ie/latest/insights/conflicts-of-interest-for-directorsIwasaki, J. and Katto, J. (2015, September). NED and trustee advise. Retrieved from careers accaglobal.com Web site: https://careers.accaglobal.com/careers-advice/sectors-and-specialisms/neds-and-trustees-advice/what-are-board-committees-and-their-functions.html
Lindsay, C. (2018, March 1). Available from: https://www.ft.com/content/87bed6b0-14bb-11e8-9e9c-25c814761640