Select Committee on Treasury Minutes of Evidence


Annex B

TERMS OF REFERENCE: REVIEW OF THE ROLE AND EFFECTIVENESS OF NON-EXECUTIVE DIRECTORS IN THE UK

OBJECTIVE

  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.

BACKGROUND

  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 strengthened.

  4.  From the point of view of UK productivity performance, progressive strengthening of the quality and role of non-executives is strongly desirable.

PROPOSAL

  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 UK—who are they, how are they appointed, how the pool might be widened etc;

    —  their "independence";

    —  their effectiveness;

    —  accountability; their relationship—actual and potential—with institutional investors;

    —  issues relating to non-executive directors' remuneration;

    —  the role of the Combined Code; and

    —  what, if anything, could be done—by individual boards, by institutional investors, by the Government or otherwise—to 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 recommendations—to Government or others—which the reviewer thinks appropriate.

April 2002


 
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