The IoD believes as a result of Enron and ensuing public concern good independent candidates are shying away from directorships because of the increased focus on the non-executive role.
Daniel Summerfield of the IoD said: ‘Non-executive directors are concerned about the number of regulations coming their way.’
He said there was evidence that good non-executives are now taking on fewer directorships than they had in the past preferring to have responsibilities in one or two companies rather than five or six.
There is growing concern about the issue as directors say they expect the role of non-executive directors to become more important to business despite the Enron fiasco, in which Lord Wakeham, a non-executive director and member of the company’s audit committee, became embroiled.
In a post-Enron survey of board members in 500 leading UK companies, Ernst & Young found 96% believe the role of non-executive directors to be valuable with 64% saying the influence of non-executives will probably increase.
Summerfield emphasised that there was no shortage of candidates willing to take on a non-executive role, but the problem is recruiting well-qualified independent directors who could take on the non-executive role.
And according to Summerfield the recruitment of ‘the right’ independent directors is key to good corporate governance.
Controversially Summerfield disagrees with IoD president Lord Young who proposed getting rid of non-executives altogether because their role was ‘nonsense’.
Since the Enron collapse much of the focus for reform has centred on changes to the role of non-executives on company audit committees. Among the proposals is one that suggests committees and their members should be responsible for verifying the independence of company auditors.
Academics have also criticised audit committees for not meeting often enough and not being staffed by ‘financially literate’ directors. Professors at Harvard have even suggested transforming audit committees into ‘transparency’ committees.
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