The Role of Non-Executive Directors in the Current Business Environment

The Role of Non-Executive Directors in the Current Business Environment

Non-executive directors (NEDs) are members of a company’s Board of Directors who are not part of the executive team; as such they do not engage in the daily management or operations of the company or organization. They are appointed through a letter of appointment by companies or organizations to challenge or monitor CEOs or senior management. They bring an independent perspective to decision making and typically have the responsibility of monitoring committees such as audit committees, remuneration committees, and nominations committee (Pass, 2002). In general, the role of NEDs is often described as that of a long-serving, consensual based decision-maker and custodian of the governance process in a company or an organization.

The role of NEDs is broad, and their demand continues to increase over the years. (Dunne and Morris, 2008,7 ) split these roles into two components, namely: ‘ensuring’ and ‘adding value’ further, (Johnson et al., 1996) sums up these roles into three leading roles, namely: control, service, and resource dependency. From the preceding, it can be noted that the role of NEDs is relatively easy to understand; however, neither of these roles would feature high on the agenda of the current business environment which is fast growing this raises the question as to how the roles of NDEs have been affected by business developments.

As a result, this proposal seeks to provide a comprehensive study of the role of NEDs in the current business environment by offering an empirical review of the mode of appointment, experience, and duties and of (NEDs) and comparing them to the traditional roles before the emergence of the current business environment.

Aim of the Proposal

Over the years, globalization and liberalization of businesses and changing societal changes, otherwise known as the current business world, have drawn attention to the role of NEDs in the current business environment. In context, most business reform initiatives have emphasized the independence of the NEDs. However, not much has been done in relation to the impact of the current business environment to the role of NEDs. The shift in institutional and state regulations and legislation as well as the business environment have led to the creation of new roles for NEDs, Therefore, This paper will be a significant endeavour in discussing how the roles of NEDs have evolved due to the current business environment. It will give recommendations on how these roles can be changed in order to meet the requirements of the new business environment.

Research questions

The main focus of this proposal is to determine the role of Non-executive Directors in the current business environment. Specifically, the study will answer the following questions:

1. What are the roles of Non-Executive Directors?
2. How have the Constant changes in the institutional and state regulations, as well as business environment, impacted the role Non-Executive Directors?
3. How can the roles of Non-Executive Directors be reviewed to address emerging changes?

Literature review

An abundant literature on the role of non-executive directors has been written over the past years. (Brown, 2015) notes that NEDs play a vital role in modern business by providing a rare emphasis on culture and relationship building. He offers a comprehensive guide and unique insights into the role of NEDs in modern businesses, and backs up his study with global case studies, interviews and research and offers a guide that deals with the changing roles of NEDs in companies as the business environment changes. He recognizes the importance of the growing pressures on NEDs and the need for compliance with the new technologies, regulations and legislations in order to avoid repercussions such as fines and penalties.

Constant changes in technology, regulations and legislation in the field of corporate governance continue to occur and they have immense impact on boards in companies (Stafford and Schindlinger, 2019). With such changes, companies have to develop new modes of governance and operations in order to keep up with the tools of technology. Therefore, NEDs should adopt a mindset of ongoing development that supports current oversight of emerging technologies, goals ought to be developed by assessing collective and individual director knowledge gaps and skills and should inform future recruitment needs in order to keep up with current business environment.

Non-executives as a body should possess a wide range of skills and experiences to enable them contribute to key facets of strategy and management (Young and Scott, 2005). Meaning that they should have access to industry management and the scope of disciplines required to understand modern or current businesses. They should not be biased towards any skills and they should have appropriate general management, technical, marketing and financial skills in order to perform their duties. Moreover, NEDs should spend adequate time on the affairs of companies and should have sufficient first-hand information of companies’ operations to enable them to make informed judgements in light with the current changes in the business environment. There should be a shift from the traditional role of NEDs to a new hands on role requiring NEDs to spend more time in the companies and have active duties as opposed to dormant duties.

Finally, one crucial role of NEDs in the modern corporate governance theory is to act as the fulcrum between shareholders and managers (Giles, 2013). They should offer an essential balance and assurance between the prime interest of the shareholders who provide for the capital in a business and the professional managers who spend that capital in order to add value in the current business environment.

Overall, these literature is significant to this study as it addresses critical issues concerning NEDs’ performance in the current business world namely; the need to be responsive to emerging changes in regulations, legislation and business environment, the need to be multi-competent and to have great skill in response to emerging changes, the need to be capable of addressing governance issues arising in light of these changes and the need to protect both shareholders and managers in companies as opposed to traditional roles of only protecting shareholders. In sum, NEDs should provide valuable contribution to the current business environment and to the progress of business enterprises.

Methodology

The research method applied for the study will be multifaceted. The proposed study will apply the descriptive method which will involve collection of data on the role of NEDs in the current business environment. The data used will be secondary data which will be derived from the findings noted in public documents that are related to the research problem (Du plooy, 1995). Its main components will be:

1. a strategic survey of the role of Non-executive Directors in the current business world
2. a review of the available, books, journals, cases, academic and applied research and reform projects;

Concerning approach, the research will use both the qualitative and quantitative approaches. The former will dwell on numerical findings obtained from in-depth interviews with stakeholders such as chief financial officers (CFOs), focusing specifically on the board of directors and will also focusing on personal accounts and individual insights as well as case study research (Gummesson, 2000). The later will be used to quantify the research question by way of generating numerical data. It will be used to quantify attitudes and opinions derived from interviews conducted through the qualitative method.

Ethical issues

The ethical issues involved in the research will be the protection of the dignity of the interviewees and the publication of the information they provide in the research in light of these, the researcher, in conducting effective qualitative interviews will:

1. Explain the purpose of the interview to all interviewees.
2. Obtain informed consent from the interviewees by addressing terms of confidentiality and explaining to the interviewees who will get access to their answers and how those answers will be analysed.
3. Obtain a signed consent form approving of the interview signed by the interviewees.
4. Indicate how long the interview will take.

Proposed Time table

Date

Activity

Comments

Selection of Research Topic

Introduction: Background, Objectives, and Research Questions

Literature Review

Research Methodology

Data Collection

Discussion and Conclusions

Submission and Presentation

Works Cited

Brown, G. (2015). The independent director. 2nd ed. Oxford: Palgrave Macmillan.

Dunne, P. and Morris, G. (2008). Non-Executive Director’s Handbook. 2nd ed. Oxford: Elsevier, p.7.

Du plooy, T. (1995). Introduction to Communication. 2nd ed. Rustica Press.

Giles, S. (2013). Managing fraud risk: Practical Guide for Directors and Managers. 2nd ed. Chi Chester: John Wiley & Sons Ltd, p.128.

Gummesson, E. (2000). Qualitative methods in management research. 2nd ed. Thousand Oaks, Calif: Sage Publishers, pp.1, 83, 157.

Johnson, J. L., Daily, C. M. and Ellstrand, A. E. (1996) Boards of Directors: A Review and Research Agenda, Journal of Management, 22, 409–438

Pass, C. (2002). Corporate Governance and the Role of Non-Executive Directors in Large.

Stafford, B. and Schindlinger, D. (2019). Governance in the digital age. 1st ed. New Jersey: John Wiley & Sons. Inc.

Young, D. and Scott, P. (2005). Having their cake. 2nd ed. London: Kogan page, p.248.