Business Ethics and Corporate Governance, Second Edition

DESIRABILITY OF HAVING INDEPENDENT DIRECTORS

Recent literature on corporate governance is replete with recommendations of various committees on the desirability of having non-executive, independent directors on the boards of companies to promote better corporate governance practices. The Cadbury Report identifies two areas where non-executive directors can make an important contribution to the governance process as a consequence of their independence from executive responsibility. First, reviewing the performance of executive management and second, taking the lead where potential conflicts of interest arise, as for instance, fixing the CEO’s salary and perquisites or dealing with board room succession. Apart from these, independent directors, ...