An Analysis on the Role and Effectiveness of Non-Executive Director (NED) as a Mechanism of Good Corporate Governance

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An Analysis on the Role and Effectiveness of Non-Executive Director (NED) as a Mechanism of Good Corporate Governance

Introduction

“Enron directors: We aren't to blame at all” - USATODAY.com

“Ex-Worldcom directors to pay for settlement” - The Times of India

“Satyam chairman resigns amid $1bn fraud” - Times Online

“$1bn fraud at India IT group” - The Financial Times

“The $1bn black hole at heart of Satyam's finances" - The Financial Times

Since 2002, when the Enron fraud amounting to billions was unfolded, the debate on the standards of independence of directors started. Questions aroused and demand was brought forward to clarify the responsibilities of non executive directors. Many efforts were taken to broaden the role and authority of the non executive directors in this regard. But even though all these standards are put into place, we see 'Satyam' scandal coming to surface which raised the objections once again. Satyam's non executive directors were among the most respected and renowned in India, as they covered key political, academic and corporate roles on the subcontinent and internationally. Satyam started to be known as 'Indian ENRON'.

Although debate is very broad and encompasses independence of auditors, separation of CEO and Chairman, policy towards whistleblower and so on. But fundamentally it is felt that much can be avoided if the directors of these companies have well played and fulfilled their responsibilities. If we turn the pages of history, we will find similar cases in the past too where directors of the company has either denied the accountability due to limited scope of their responsibilities or didn't know about the scandal/fraud at all because authority constraints.

The term governance in general gained worldwide prominence when international actors like the World Bank, the International Monetary Fund and the United Nations started to introduce “good governance.” Similar prominence has been given to the concept of “corporate governance.” Corporate governance refers to shaping the relationship among stakeholders and directors of companies and corporations, as well as to steering organizations in general (in terms of standardization of processes, guidelines, and policies). Responsibility, accountability, performance orientation, and efficiency are key issues in corporate governance.

The United Kingdom Responsible NanoCode is a good example of corporate governance within the nanotechnology field. Both good governance and corporate governance have been very influential on conceptions of ...