The role of non-executive directors: concerns regarding the standard of liability for breach of a duty of care and skill

Master Thesis

2021

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The importance of the role of a non-executive director (‘NED') within a given company has steadily been increasing in recent years particularly as a result of a number of high profile corporate collapses having taken place in many developed countries. In the advent of such collapses, industry observers are often interested in knowing what the NEDs were doing during their time at the company and whether they failed in preventing the demise of the company. The reasons for having NEDs on the board of directors are many and varied but include reducing the power of the executive directors, adhering to principles of good corporate governance, bringing an outside and independent perspective, acting as a boundary spanner between the board and the stakeholders' of the company, acting as internal advisors and monitoring the actions of the board etc. In light of the many corporate collapses and in recognising that the Companies Act makes no distinction between executive and NEDs, it is deemed essential to consider the standard of liability applicable to NEDs and to critically engage with the question of whether there is a legitimate basis for departing from the current globular standard of liability applicable to all types of directors. If there is to a distinction between the standard of liability as between executive and NEDs, the distinction should be in relation to the duty to exercise reasonable care and skill. The purpose of this research is, therefore, to investigate and clearly demonstrate the distinction between the role of a NED within a company as compared to their executive counterparts in order to support the conclusion that, indeed, an objective/uniform standard of liability applicable to all types of directors as regards the duty to exercise reasonable care and skill should be rejected.
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