Non-Executive Directors in Corporate Governance Essay

Non-Executive Directors in Corporate Governance - Essay Example The need for altering the corporate governance and the accountability of non-executive directors has come forth due to the collapse of a number of high profile corporations ( Carver and Oliver 2002; Cadbury 2002; Vinten 2002; Taylor 2003). Oman (2001) tried to define corporate governance as the public and private establishments which includes polices, rules and consented business patterns, which based on the economy of the market economy, administer the relationship linking internal stake holders on one hand, and share holders on the other. According to Cochran and Warwick (1988) corporate governance is: "an umbrella term that includes specific issues arising from interactions among senior management, shareholders, boards of directors, and other corporate stakeholders." 'Corporate governance' is seen as a fresh term which has entered our business terminology particularly in the last decade. Nevertheless connecting accountability with corporate governance (Cadbury 1992) is not a recent issue; it has grown with the development of the capitalistic system and growth of world economies (Vinten 2003). The different issues to be considered in this paper are: accountability and the role of non-executive directors with regard to corporate governance and accountability. According to Sir Arthur Cadbury in his paper (Cadbury 1992, p.15) "Corporate governance is the system by which companies are directed and controlled". This is concerned with the institution of structures and procedures by which management is responsible to shareowners with the aim of raising shareholder worth. The OECD (2004, p.11) defines as "Corporate governance involves a set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate governance provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interest of the company and its shareholders and should facilitate effective monitoring." A single structure or form is not suitable for all kind of businesses. This is actually acknowledged by the OECD rationales (2004 p.13). The reason is not only the intricacy and variety of actions that businesses are concerned with but also the lawful effects reckoning on the country's legal power and other social and cultural matters. Corporate performance and analysis Majority of research work have been carried out trying to connect company operation with different factors like board independence (Bhagat and Black 2002). Most of these studies undertaken actually surveyed the 'for-profit organizations' and made use of the common operation indicants like profit margins, share value and ROI. Research on the effect of corporate governance in organizations is mainly concentrated with the use of quantitative data analysis, whereas corporate