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Role of Non Executive Directors on Companies Performance

Table of Contents

CHAPTER 01: INTRODUCTION1

Role of Non-Executive Directors1

Aims and Objectives2

Proportion of Non Executive Directors on UK Corporate Boards3

Performance of Non-Executive Directors3

CHAPTER 02: LITERATURE REVIEW5

CHAPTER 03: METHODOLOGY11

Research Methodology11

Data Collection11

Collection of Primary Data12

Sample Selection12

Collection of Secondary Data12

Questionnaire Items13

Design of the Questionnaire13

References15

CHAPTER 01: INTRODUCTION

Background of the Research

After the corporate excesses of the 1980s, the performance of the board of directors has become scrutinized. There are a number of professional committees that have highlighted the importance of the performance of the board (Bebchuk et al, 1999). The regulatory and professional committees have suggested that in the board of directors of an organization, a majority of non-executive directors should be present. On the other side, there are some empirical evidences that suggest doubt the presence of non-executive performance (Brudney, 1982, pp. 599). These evidences have evaluated whether the presence of non-executive directors can improve performance of companies or not. These studies have suggested that the value of non-executive directors vary across different companies (Grace, Ireland, and Dunstana, 1995).

Motivation of Non-Executive Directors

There are different motivating factors for non-executive directors. One of these motivating factors is the desire to make a difference. Non-executive directors are provided with the opportunity to participate in the decision-making process of a firm. In addition, they are also motivated to give their suggestions (Van Den Bergh and Levrau, 2002).

Aim of the Research

The aim of this research is to evaluate the role on non-executive directors in an organization. This research will evaluate and determine different factors that lead towards the motivation of non-executive directors. The research will also determine different factors that influence the performance of independent directors.

Objectives of the Research

The aims and objectives of this research are:

To understand and evaluate the position of non-executive directors

To evaluate the association between the performance of non-executive directors and their autonomy

To evaluate the association between the performance of non-executive directors and their age

Performance of Non-Executive Directors

The non-executive directors should take care of a number of factors in order to deliver superior performance (Shen, 2003, pp. 466). It is important for non-executive directors to ensure that the assets of an organization are safeguarded and invested in an effective manner. Non-executive directors are also required to maintain proper documentation (Guest, 2008, pp. 51).

The performance of independent directors in evaluated through different factors. Some of these factors include knowledge, skills, experience, and other factors (Harris and Raviv, 2008, pp. 1797). Although, non-executive directors are not required to give constant attention to the issues of the business, they are required to familiarize themselves with the processes of the company (Hermalin and Weisbach, 1991, pp. 101).

Agency Theory

Agency theory is defined as the association between a principal and an agent. In the context of a company, a principal is a shareholder and the agent is the manager of a company. According to agency theory, when a individual or individuals hire other individual or individuals to delegate the authority, a conflict of interests arises (Moldoveanu and R. Martin, ...