Difference between non executive director and executive
Executive directors are concerned with the actual management. Non- executive do not have executive management responsibilities but are concerned with general management policy and monitoring of executive director. Both owe the same duties to the company (s170- s177)
Non- executive director
According the Code, the board should include an appropriate combination of executive and non- executive directors, so that not any individual or small group of individuals dominates the boards’ decision making. It should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their ...view middle of the document...
Although it is impractical to define what independence means, the check- list approach provides the guidance in developing the best practice and increasing the accountability.
Regarding to the UK Corporate Governance Code 2010 which consists of principles of good governance in relation to leadership, effectiveness, accountability, remuneration and relations with shareholders. It adopts ‘comply and explain’ principle. The board of the listed company is required by the Listing Rules to include a statement in its annual report of whether it has complied with the Code. If something has not been complied with, the reasons must be specified.
Institutional investors: pension fund
The Code recommends that they are encouraged to take an active role. Benefits are aligning the interest of shareholders and directors so as to maximize shareholders’ wealth. Drawbacks are pressuring investee to focus on short-term profits. If they become involved in the management, they may receive price-sensitive information that has not publicly disclosed, this is engaged in insider dealing.
Due to large block of shares they hold, they have the potential to influence the company management. They may use its voice by voting on shareholder resolutions at general meetings or engaging with the company through one to one meetings with board. Alternatively they can choose to exit by selling its shares. But they have to accept substantial discounts to liquidate their holdings.
The Stewardship Code aims to enhance the quality of engagement between institutional investors and companies and to improve long-term returns to shareholders. It adopts the principle of...