TERMS OF REFERENCE: REVIEW OF THE ROLE AND
EFFECTIVENESS OF NON-EXECUTIVE DIRECTORS IN THE UK
1. Building on the work of the Company Law
Review and the Myners Review, the Government has commissioned
Derek Higgs to lead an independent review of the role and effectiveness
of non-executive directors in the UK.
2. Non-executive directors play a central
role in UK corporate governance. The Company Law Review noted
"a growing body of evidence from the US suggesting that companies
with a strong contingent of non-executives produce superior performance".
3. In the decade since the introduction
of the Cadbury Code, the role of non-executives has undoubtedly
4. From the point of view of UK productivity
performance, progressive strengthening of the quality and role
of non-executives is strongly desirable.
5. Though the Government has an open mind,
its preferred starting-point in this area is, if possible, an
approach based on best practice, not regulation or legislation.
6. The Government believes it would be valuable
for a senior independent figure from the business world, building
on the work of the Company Law Review, or Myners, and of the Institute
of Directors and others, to undertake a review to assess:
the population of non-executive directors
in the UKwho are they, how are they appointed, how the
pool might be widened etc;
accountability; their relationshipactual
and potentialwith institutional investors;
issues relating to non-executive
the role of the Combined Code; and
what, if anything, could be doneby
individual boards, by institutional investors, by the Government
or otherwiseto strengthen the quality, independence and
effectiveness of non-executive directors.
7. The reviewer will be asked to look at
these questions in an international context.
8. The aim of the review is to:
build and publish an accurate picture
of the status quo;
lead a debate on these issues, especially
in the business and financial worlds; and
make any recommendationsto
Government or otherswhich the reviewer thinks appropriate.