Non-Executive Directors

This paper arose from the WNC Light Touch Review, in recommendation 8D, that;

“The WNC Board by operating as non executive directors can enhance the efficiency of the organisation and provide much appreciated support to staff”

Commissioners sought clarification at the July meeting on the definition and role of Non-Executive Directors.

In 1992, the Cadbury Report set out clearly, the roles and responsibilities of Chairs, Chief Executives and Non-Executive Directors, in order to improve corporate governance in business and other organisations. This has led to improvements in institutions and helped develop sound internal controls.

In particular, the Cadbury Report identified the need for non-executive Directors to have a clearly defined role in determining how an organisation is directed and controlled. They should `bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct'. Non-executives are expected to act as a counterbalance to executive Directors and senior staff and to challenge them where necessary.

A non-executive director is therefore a person who takes part in the collective decision making process of an organisation, and has collective responsibility for its work. But has no day to day role in the management of that organisation. They are expected to question the reasons for major decisions, to ask for and scrutinise all relevant information and if necessary, to instruct the organisation's senior management to cease a particular course of action.

Independence - Non-executive Directors must be “independent”

Performance Review -The performance of the Board and each individual Director should be formally assessed at least annually and the details of the assessment published.

Majority - At least half the members of the Board, excluding the Chair, should be non- executive Directors, who pass the test of independence.

Attendance - The Annual Report should state the number of times that the Board and its Committees met. It should also set out the attendance record of each Director.

Multiple Directorships - Non-executives must be able to give fully the time that is required to each Board upon which they sit. Being on several Boards is therefore unlikely to be tenable. No-one should be the Chair of more than one company.

Director Development - Arrangements for the induction of new non-executive Directors, and the development of all non-executive Directors, should be substantially improved and accorded a high priority.

While there are a number of similarities between the public and private sectors in terms of corporate governance principles, Board members should be aware that it may not always be possible to draw a direct parallel between the two. Being on the Board of a public body will call for a wider appreciation of how the principles of corporate governance are mediated by the codes of conduct that apply to those who serve in public life.

For a public sector body, the role would be more to guide the work of the staff. However, this is more usual for executive NDPB's who can take independent action from Government. An advisory NDPB would not usually have staff that were carrying out work to guide.

For WNC, it may be more useful to see the role of `non-executive director' as being one to guide and scrutinise the work of the Chair and Director. Since they are tasked to take forward the Board's work outside Board meetings.

There is a possible contradiction between acting as an advisory NDPB and members acting as non-executive directors. Board members of an advisory NDPB are tasked with work, not the staff provided to the body. However, a non-executive director would not be tasked with work themselves, merely to oversee the work of others. This is an area that may need clarification.

WNC/07/5/13

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