The role of non-executive directors in corporate governance.

Role of Non-Executive Director in Corporate Governance

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Introduction

A corporation is only an artificial being created by mere operation of law . Although a corporation , as a matter of principle , has a personality distinct and separate from its directors and shareholders it cannot transact business through its own . It can only act through a set of representatives . These are the board of directors who are elected and chosen by the shareholders

As the representatives of the company , the Board of Directors of a corporation

is given sufficient authority to manage the corporate business . They are vested with the authority to exercise corporate powers , conduct all business and control and hold all properties of the corporation . The supreme authority insofar as the management of the business regular and ordinary affairs of the corporation is vested with the Board of Directors . Thus , the board of directors of the corporation is considered to have the ultimate responsibility overall direction and management of the corporation

In every jurisdiction , corporate directors are expected to perform their duties in the company with the proper skill , care and prudence The standard of skill , care and prudence is that of an average person occupying the same position . Under the law , there is no distinction insofar as the duties of responsibilities imposed to directors . Thus the duties required of a director as set forth under the Companies Act of 2006 apply to all the directors regardless of the nature of their position . These duties are : a ) duty to act within their powers b ) duty to promote the success of the company c ) duty to exercise independent judgment d ) duty to exercise reasonable care , skill and diligence e duty to avoid conflicts of interests f ) duty not to accept benefits from third parties in connection with his functions in the company g duty to disclose any interest in the transactions entered into between the director and the company

Corporate Scandals

To reiterate , directors have the ultimate responsibility in the overall management of the corporation . Greater responsibility has been imposed upon them in the light of the corporate scandals which were all highly publicized . They are responsible not only for the general supervision of the company but also to its overall financial performance . Indeed if the board of directors will not be able to properly perform its function they may find their companies in the state of bankruptcy

With the increased scrutiny of the government authorities and the new laws against illegal corporate activities , the directors of the corporation owe it upon themselves and to the company to practice due diligence in the management of corporate affairs

A . Case of Enron Corporation

One of the most infamous examples of corporate scandal is the case of Enron Corporation . Enron Corporation was an energy company based in Texas . Enron was considered as the leading natural gas pipeline in the United States . Its market extended from Australia , Argentina , all the way to the United Kingdom . Before 2001 , Enron employed as many...