Together, non-executive directors and institutional investors will solve the

corporate governance problem facing the UK’s listed companies. Critically

discuss.

Introduction

Corporations play a central role in modern economies, 1 there are different

opinions on how corporations and corporate law are generally viewed.2 Whilst the
potential for the corporate accountability had been firmly on agenda of British
corporate governance for some time,3 the UK corporate law system has been
criticized for being fragmented.4 The niche of business confidence in the exercise
of balance of power over large listed corporate entities was lacking according to
Berle and Means – indeed the British corporations did not have a properly
developed business stakeholder relationship.5 The multi-level decision making
company board described for listed companies has only created “familiar tension
between board and director alongside a tension between corporate and national
responsibilities.”6 In essence, the essay provide that the body corporate unitary
composition is still based on agency theory7 on the premise that a director and
investors are still diverged8 and where possible the directors still maximize the

1
Law commission, Reforming the law, Corporate Criminal Liability, A discussion paper (9 June 2021) p.
1<at https://consult.justice.gov.uk/law-commission/hate-crime>accessed on 08 December 2021.
2
Kay, 'The Stakeholder Corporation' in G. Kelly, D. Kelly and A. Gamble, Stakeholder Capitalism
(Basingstoke: Macmillan, 1997) 126., p. 183.
3
https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/Developments-in-
CorporateGovernanceand-Stewardsh.pdf (accessed 15 December 2021) p 19.
4
Mark F Wright, Corporate Governance and Directors’ Responsibilities: Responsible inefficiency or
irresponsible Efficiency? Business Law Review Volume 7 No 8 & 9, September 1996, p 174.
5
Mizruchi, Mark S. "Berle and Means revisited: The governance and power of large US
corporations." Theory and Society 33.5 (2004): 579-617
6
Cheffins, B. R. (2013). The Undermining of UK Corporate Governance (?). Oxford Journal of Legal
Studies, 33(3), 503–533. http://www.jstor.org/stable/24562788. P 503.
7
Software v Fassihi [2004] IRLR 928 [66]; EF Fama and MC Jensen, ‘Separation of Ownership and
Control’ (1983) 26(2) Journal of Law and Economics 301.p.2.
8
EF Fama and MC Jensen, ‘Separation of Ownership and Control’ (1983) 26(2) Journal of Law and
Economics 301.
shareholders personal utility (interests) and cannot be expected to act in the best
interests of other stakeholders.9 This paper explores the role of NEDs and institut
investors as a catalyst for reformation in the current UK Corporate Governance
focusing upon the reasoning, the influences and the weakness thereof:

UK Corporate Enlargement.

As already mentioned, one consequence of the corporate system has been the
inability for corporate members (shareholders) to appoint a discretionary trusted
corporate director. However, the institutions of capitalist system British body
corporate underwent a contemporary renaissance under Sir Adrian Cadbury of
the United Kingdom in 1991.10 The Committee on the financial aspect of
corporate Governance under Cadbury offered an internal controls board strategy,
and introduced independent /non-executive directors who according to Witney
(2016) acted in separate capacity as part of management dynamics for listed
companies (usually large corporations).11 According to their convergence role,
the NEDs discuss points of disagreement with unitary oriented corporations and
locate new ideas.12According to Shah and Napier the NEDs are to strengthen the
unitary board system of all listed companies. 13 Also, they are to monitor or

9
Mehdi Khedmati and Syed Shams, Managerial acquisitiveness and corporate tax avoidance
Article  in  Pacific-Basin Finance Journal · August 2018 DOI: 10.1016/j.pacfin.2018.08.010
https://www.researchgate.net/publication/327182683_Managerial_acquisitiveness_and_corporate_tax_av
oidance P. 3; Davis, J., F. D. Schoorman and L. Donaldson (1997), Toward a Stewardship Theory of
Management, Academy of Management Review 22(1), 20–47, p. 22.

10
The Report of the Committee on the Financial Aspects of Corporate Governance (London, Gee
Publishing Ltd, 1992) (Cadbury Report);The UK Corporate Governance Code 2018 (PDF) (published in
July 2018).
11
Witney, S (2016) Corporate opportunities law and the non-executive director. Journal of Corporate Law
Studies 16 (1) ISSN 1757-8426 DOI:<http://dx.doi.org/10.1080/14735970.2015.1117349, p. 177.
12
www.parliament.uk, Select Committee on Trade and Industry Sixth Report parliamentary business,
publication and records. Para. 30.
13
Neeta Shah and Christopher J. Napier, The Cadbury Report 1992: Shared Vision and Beyond
scrutinize the role to be subjected to continuous assessment of the vulnerabilities
of the management teams.14

In Cadbury’s view, board members are likely to be held accountable at

companies that are perceived not to have taken the necessary measures to
manage the corporate crisis, including the protection of its workforce. 15 According
to Coffee the committee he chaired was set up to prevent corporate fraud and
director malfeasance following the Polly Peck scandal, in which Polly Peck, a
major British firm, went bankrupt after years of falsifying its financial reports. 16The
finding was later extended to cover corporate governance on another stream of
high profile corporate collapses which have left employees out of pocket as
regards wages and other entitlements.17

Sir Adrian Cadbury self-regulatory system for better management of trust, set a
fundamental principle of the unitary board with no legal distinction between
executive and non-executive directors.18 The set recommended process resulted
in a scheme of Financial Reporting Council (FRC) codes, with standards that
corporate governance is applicable to all companies with a ‘premium listing’,
whether incorporated in the UK or elsewhere. 19 However, to explore this relief
involves the commission of all listed companies in London Stock of Exchange
(LSE) to subscribe to a relatively voluntary free membership of the soft law. 20 The
company would then acquire assets of disclosing their compliance with corporate
governance or state the reasons for noncompliance21of the code. Lorraine
14
Ibid; Report of the committee on the Financial Aspects of Corporate Governance’ (Gee 1992) [4.10].
15
2018-Guidance-on-Board-Effectiveness-FINAL.PDF (frc.org.uk)
16
Black and John C. Coffee, Jr., Hail Britannia? Institutional Investor Behavior under Limited Regulation,
92 MICH. L. REV. 1997 (1994), p. 2022.
17
Ibid.
18
Ibid p22 [7.5];
19
Ibid see note 5 p3.
20
Brian R. Cheffins, The Stewardship Code's Achilles' Heel Article in Modern Law Review · November
2010 DOI: 10.2307/40926559 CITATIONS 3 READS 303 1, p.
1007<https://www.researchgate.net/publication/261928830:> accessed on 26 December 2021
21
Study on monitoring and enforcement practices in corporate governance in the Member States’
conducted by Risk Metrics Group for the EU (23 September 2009) at 22, available at
Uhlaner et al. (2007) claimed that the corporations that endorse the code would
be favored by higher involvement of investors. 22 It is also admitted that investors
sees the NED’s involvement as securing their investment, 23and the shares given
will be much higher is more valuation is than the unsubscribed company.24

As set out, drawing from the elements of the widely used schemes 25 since 1992
to the most recent UK Corporate Governance Code published in July 2018, 26 the
Cadbury Committee’s Code of Best Practice formed the framework for the
development of ‘corporate governance’.27 It provided for shareholders value on
the institutions with emphasizes that corporations should be run, in the interest of
investors protection,28 and arguably workers and external stakeholders, such as
suppliers, bankers or other debt-providers.29 For example, the theoretical legacy
of Cadbury commission first version of the Code, published in 1992 is the
provision of benchmark definition for corporate governance as ‘the system by

http://ec.europa.eu/internal_market/company/docs/ecgforum/studies/comply-or-explain-090923_en.pdf
(accessed 23 December 2021).
22
Lorraine Uhlamer, Mike Wright, Morten Huse, Private Firms and Corporate Governance: An Integrated
Economic and Management Perspective (Feb2007) DOI: 10.1007/s11187-006-9032-z RePEc
https://www.researchgate.net/publication/5158427, p. 232.
23
Alison Dillon Kibirige, Winifred Tarinyeba Kiryabwire, Corporate governance unlocked (January 2019)
ISBN: 9781860727214, p5. <https://www.cgi.org.uk/assets/files/shop/Corporate%20Governance
%20Unlocked_sample%20extract.pdf> accessed on 08 January 2022.
24

25
Lee Roach, ‘The UK Stewardship Code’ (2011) JCLS 463 – Discusses the origins and effectiveness of
the UK Stewardship Code, p. 472. The UK was the first country to publish corporate governance (the
1998 Combined Code), countries have since followed.
26
https://www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-
governancecode<accessed on 08 December 2021.
27
Alison Dillon Kibirige, Winifred Tarinyeba Kiryabwire, Corporate governance unlocked (January 2019)
ISBN: 9781860727214, p. 4<https://www.cgi.org.uk/assets/files/shop/Corporate%20Governance
%20Unlocked_sample%20extract.pdfaccesse on 08 January 2022.
28
Brian R. Cheffins, The Stewardship Code's Achilles' Heel Article in Modern Law Review · November
2010 DOI: 10.2307/40926559 CITATIONS 3 READS 303 1, p.
1007<https://www.researchgate.net/publication/261928830:> accessed on 26 December 2021
29
The OECD Principles of Corporate Governance, (OECD 1999), available at <http://www. OECD-
ilibrary.org/industry-and-services/corporate-governance-improvingcompetitiveness-and-access-to-capital-
in-global-markets_9789264162709-en (presenting report regarding corporate governance to contribute
positively to economic performance of corporations in OECD countries). Accessed 19 December 2021.
which companies are directed and controlled”. 30 The Draft Report set out why
good corporate governance was so important:

The country’s economy depends on the drive and efficiency of its

companies. Thus the effectiveness with which the board discharge their
responsibilities determines Britain’s competitive position. They must be
free to drive their companies forward, but exercise that freedom within a
framework of effective accountability. This is the essence of any system of
good corporate governance.31

Corporate problem

However, the inclusion of non-executive directors as intermediary equal

membership32 to monitor corporate activities is still difficult to capture in practical
terms. The unexpected collapse of America’s own Enron in 2002 according to
Bratton (2001) has caused discomfort to corporate governance and the nature of
shareholder value.33 It is therefore unsurprising that Derek Higgs (2002) was
constituted to conduct a review on the role and effectiveness of non-executive
directors, the report of which was published in January 2003. Notwithstanding,
there were still recorded corporate mismanagement that resulted in collapses of
other corporations in recent years, in the likes of BHS and Carillon. This sad
development has brought corporate governance and NED involvement
competency to question.34 Therefore, the reports emanating from several
30
(Cadbury Report 1992, Introduction s2.5) The paragraph 2.5 is still the classic definition of the context
of the Code within UK’s subsequent corporate governance codes consisting of the Combined Codes
(1998, 2003, 2006) and the UK Corporate Governance Codes (2010, 2012, 2014)
31
Committee on the Financial Aspects of Corporate Governance, ‘The Financial Aspects of Corporate
Governance: Draft Report’ (Gee Publishing Ltd 1992) *1.1+.
32
Ibid.
33
William W. Bratton, Enron and Dark Side of Shareholder Value 76 Tul. L. Rev. 1275-1361 (2002), p.
1284: <https//: scholarship.law.georgetown.edu/facpub/505>accessed on 09 January 2022.
34
Department for Business, Energy & Industrial Strategy, Policy Paper, Restoring trust in audit &
corporate governance, Published 18 March 2021. (Executive Summary)
chapters vindicate corporate governance involvement of NEDs, and push the
essay theoretical agenda in novel ways.

In what follows, the essay gathered that non-executive directors are vulnerable to
progressive disintermediation, however, considering this as objective theory in
the following narratives: Director’s clear policies are derived from the statutes
and common law allowing for responsibility of running the company
successfully.35 The aligned entities (NEDs) performance can be worsened as
offering by probative as earlier examined and does not have statutory
recognition or his role enumerated in the article of association. It is worth
stressing that Whitney (2016)36 acknowledged the statutory does not prevent
them to invest their knowledge on a broad base across different employment.
However,

David J et al. (2003) also asserted that the extent of involvement in the
coordination of activities across divisions in the areas was contingent on the
corporate strategy.37

Potentials for corporate governance

Another key foundation of Cadbury’s advocacy of non-binding corporate

governance code is the "principle of transfiguration” within the generation regime

35
Ibid.
36
Simon Witney (2016) Corporate opportunities law and the non-executive director, Journal of Corporate
Law Studies, 16:1, 145-186, p. 159 <DOI: 10.1080/14735970.2015.1117349> accessed on 22 December
2021.
37
David J. Collis, David Young, Michael Gold “The Size, Structure, and Performance of Corporate
Headquarters” Harvard Business School Strategy, Working Paper Number: 03-096 Working Paper
(2003), p. 12.
of institutional investors or otherwise corporate investors.38 Although their impacts
have become more noticeable in 1970 according to Roach. 39 Institutional
Investors are large, professional participants to the financial markets, such as:
Pension funds, Investment banks, Fund-management companies, Insurance
companies Trusts. Many of the rules discussed under Cadbury scheme were
later leveraged by Greenbury and more importantly Sir Ronald Hampel
‘Combined Code” in 1998’ appraisal focused specifically to prevent corporate
governance abuses.40 The outcome has benefited institutional investors in
practice without any need to analyse basic rules.41

Accordingly, the UK has the largest 20 institutional owners, and on average hold
more than 30% of the capital in listed companies associated with institutional
investment such as pension funds and insurance companies as dominant
institutional investors in the UK.42The institutional investors relied on the Financial
Reporting Council (FRC) published UK Stewardship Code, the nonbinding
philosophy code as strengthened in 2020 identifying seven core areas 43to
encourage-or even push-institutional directors to a high level of long-time
competitive performance connected to stakeholders value.44 But we really wanted
to get a different perspective, and the essay now focuses on the driving force

38
Lee Roach, ‘The UK Stewardship Code’ (2011) JCLS 463 – Discusses the origins and effectiveness of
the UK Stewardship Code, p. 464.
39
Ibid.
40
Marc Massoud, E. Daniel Shim, Corporations: Corporate Governance, Public Accounting Firms and
Multinational Corporations: The US Sarbanes-Oxley Act Perspective (2005), Volume 3, Issue 2, p. 161.
41
The 2018 UK Corporate Governance Code expands the definition, recognizing that companies do not
exist in isolation:
42
Cynthia A. Williams, Richard W. Marie L. Corman John M. Conley, William Rand Kenan, AN
EMERGING THIRD WAY? THE EROSION OF THE ANGLO-AMERICAN SHAREHOLDER VALUE
CONSTRUCT The University of North Carolina School of Law, p.7.
43
The UK Stewardship Code, was strengthened in 2020.
44
Alison Dillon Kibirige, Winifred Tarinyeba Kiryabwire, Corporate governance unlocked (January 2019)
ISBN: 9781860727214, p5. <https://www.cgi.org.uk/assets/files/shop/Corporate%20Governance
%20Unlocked_sample%20extract.pdf> accessed on 08 January 2022.
behind successful performance of institutional investors and asks what
interventions strategy need to be introduced for NEDs?

The institutional investors have access to a broad capital market from where
they mostly belong and are knowledgeable in using their vote to make changes
to managerial structure and protect their shares with portfolio insurance. 45 This in
turn, enhances their ability to market opportunities, which in turn gives flexibility
to adapt to unpredictable investment change. The institutional investors in their
investment markets regulation and decisions  maintain a balancing stewardship
owners without substitute or trade self-serving behaviors for cooperative
misbehaviors.46 Ronald & Reinier also asserted that institutional investors focus
on protecting the ‘basic proprietary interests’ which are necessary to enable the
capital owners to enjoy an adequate standard dividend of their indirect
investment.47 Thus, it is just to subscribe to the view that the proprietary interest
to maintain human dignity is their watchword.

This seems much more straightforward for corporate investors, they are noticed
to sit as a trust on a large sum of public money 48 with a large number of shares to
wield enormous bargaining power.49 However, the recorded radical achievement
of institutional investors is kindled by innovation in the Code of Best Practice

45
Ruth V. Aguilera and Alvaro Cuervo-Cazurra, Codes of Good Governance Worldwide: What is the
Trigger? Organization Studies 2004 25: 415<http://10.1177/0170840604040669<accessed on 14
December 2021 p.428
46
James H. Davis, F. David Schoorman and Lex Donaldson Source: The Academy of Management
Review, Jan., 1997, Vol. 22, No. 1 (Jan., 1997), pp. 20-47 Published by: Academy of Management Stable
URL: https://www.jstor.org/stable/259223, p 22.
47
Ronald J Gilson & Reinier Kraakman, ‘Reinventing the Outside Director: An Agenda for Institutional
Investors’ (1991) 43 Stan L Rev863, 875.
48
Marc Massoud, E. Daniel Shim, Corporate Governance, Public Accounting Firms and Multinational
Corporations: the US Sarbanes Oxley Act Perspective Volume 3, Issue 2, Winter 2005-2006, p. 167.
49
Ibid.
199850 an adventurous outcome seems a possibility for institutional investors to
record great achievements. However, to replace private/human investors is first
and foremost a question of whether institutional investors are (or can be)
assigned the status of a legal person under existing legal frameworks. 51
Institutional investors cannot derive legal personhood based on existing models,
and consequently cannot easily legally replace human and legal entities in the
fields of their indirect investment.

As aforesaid, unlike institutional investors, the private investors came to the

capital markets to benefit from what has widely been recognized as limited
liability and ‘legal entity. The Companies Act 2006 requires companies to have
directors with at least one of these directors being a 'natural person' (s.154,
s.155). 52
The combined effects of these contrasted economic fallible guide of
directors made possible higher returns of dividends and possibly undeclared
profit to hold tax from being deducted is especially attractive to individual
investors. The private investors takes advantage of the defensive ‘economic
instruments’ promoted by Salomon 53that established a platform for a market that
not only promised free transfer of shares but also ensured bailout for
bureaucratic board association after corporate misconduct. The deal of limited
liability set investors free after a relatively high net-worth individual bank credit
with imposed high interest on the capital borrowed.

To balance, the private investor resuscitates their economies under national

regulatory frameworks by potent corporate lead director or director aligned
shareholder.54 This is made possible by contracts that provide certainty for

50
The Combined Code (2000) at http://www.ecgi.org/codes/documents/combined_code.pdf.
51
Tesco Supermarket Ltd v Nattrass [1972]AC 153, 188; who can represent directing mind of company
are limited to the provision in article or as otherwise specified, e.g
52
Companies Act 2006, s154, s155.
53
Salomon v Salomon Ltd
director’s works with multiple ownership discomfort. 55 This in effect provides a
lack of a ‘monitoring system’ of corporate quality of care due to the existence of
cultural issues and the lack of precedence in the guidelines available to
shareholders.56 The fragmentation and lack of coordination between managers
and the board led to a vacuum in relation to the enforcement of particular
standards.57. They may dissolve or negotiate for takeover of their companies
following a corporate fraud stagnation and avoid paying liabilities to staff,
unsecured creditors and the taxpayer. The directors are the ones who are
obliged to take decisions in the company's interest, 58 unless decisions are limited
by the article Model Art 3.59  Hence, the important factor promoting private
investors’ dominant role at the detriment of other stakeholders is the combined
effects of these trends,60 as a corporate matter that gives private investors more
legitimate claims than the institutional investors.

At the same time, to avoid misconduct or reputational damage to the company

(another separate entity), the company law and the insolvency61 introduced some
monitoring and compliance checks on directors. This is desirable as English law
laid emphasis to the concept of "human agents" on directors who are responsible

54
Commission on Intellectual Property Rights Integrating Intellectual Property Rights and Development
Policy (2002), p. 16

55
H. Hansmann & R. Kraakman, ―The end of history for corporate law‖, in ―Convergence and
persistence in corporate governance‖, ed. by J.N.Gordon and M.J.Roe, 2004, pp. 13-14.
56
EF Fama and MC Jensen, ‘Separation of Ownership and Control’ (1983) 26(2) Journal of Law and
Economics 301. p.2.
57
Blair, Margaret M. and Stout, Lynn A., A Team Production Theory of Corporate Law. Available at
SSRN: https://ssrn.com/abstract=425500 or http://dx.doi.org/10.2139/ssrn.425500, p. 255.
58
Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunningham [1906] 2 Ch 34 (CA).
59
Salmon v Quin & Axtens Ltd [1909] 1 Ch 311 (CA).

60
 H. Hansmann and R. Kraakman, “The end of history for corporate law”, (2001) 89 Georgetown Law
Journal 439.

61
Insolvency Act 1986 (IA 1986)
and act on companies' behalf, and are subsequently liable for failing to act in
good faith as a natural legal person.62

Shareholder Rights:

Accordingly, the shareholders that perceive they have been the victim of injustice
at the hands of corporate directors, the UK corporate law under the Companies
Act 2006.63 primarily allowed the shareholders to ground his defense of civil
disobedience prescribing regulations for the company by placing more onerous
requirements on the directors through the articles. 64 The articles may not dilute
the directors duties as it constitutes a binding contract as set out in the act under
s 171–177 and already made decisions will remain. 65 Moreover, shareholders
have right to voting to serves as an exercise of correction, 66increasing the speed
of decision-making against director’s overzealousness, making appointments and
removal of managers (directors) at general meetings. Moreover, a written
resolution can also serve to remove the director before the director’s term of
office was due to expire (CA 2006 s. 168). This engagement tool also
encourages corporate reasonable behaviour provided they are in line with the
principles of good governance and considered the long-term interest of the
corporate clients. However, Fama and Jensen(1983) in their narratives asserted
that such an instrument of control can be difficult to implement in diffusing big
complex corporations.67

As a result, a shareholder can bring a derivative claim on behalf of the company,

against a director, a former director or a shadow director (Companies Act 2006
62
The Charter Governance Institute<Directors' general duties (cgi.org.uk)>accessed on 04 January 2022.
63
The article Model Art 3; Salmon v Quin & Axtens Ltd [1909] 1 Ch 311 (CA).
64
Ibid.
65
Sealy & Worthington’s, Cases and materials in company law (10th edn, Oxford, 2013) p.182.
66
The Companies Act 2006 s. 303 does grant the members the power to require the directors to call a
general
67
EF Fama and MC Jensen, ‘Separation of Ownership and Control’ (1983) 26(2) Journal of Law and
Economics 301.p.22-23.
ss 260 to 264). The claim must be for an actual or proposed act or omission
involving negligence, default, breach of duty or breach of trust and may have
taken place before the claimant became a shareholder. However, in alternative a
shareholder may prefer to bring a petition to a court on grounds of unfair
prejudice under S994.68 According to Bourne (2002), 69 the prospect of recovering
compensation is more appealing to shareholders rather than

commencing a derivative action that can be followed by winding up. 70 Any

shareholder may petition the court on the grounds that the affairs of the company
are being or have been conducted in a manner that has unfairly prejudiced the
shareholders generally or a section of shareholders which includes at least
himself, or there is a proposal to take such action (CA s994). The conduct must
be both unfair and prejudicial to the minority shareholder(s) but it does not have
to be illegal and the directors do not have to have acted negligently or in bad
faith.71 It is up to the shareholders to show that the conduct is unfair and
prejudicial.

Whilst the above remedy could have cushioned the insider dealing of
inappropriate commercial activities, however, certain money activities are clearly
executive directors decisions and directors are subject to human prosecution by
innocent outside creditors for abuse of the separate corporate personality that
warrants “piercing the corporate veil” by the court.72under the Companies Act s
213.73The fraudulent trading also serves as a criminal offense under s
993.74Moreover, under s 214,75to remove the blurred distinction, s214 was
68
The Companies Act 2006 section 994 
69
Nicholas Bourne Just and equitable winding up, Business Law Review Volume 23 No1 June 2002, p.
138.
70
Re Abbey Leisure [1990] BCC 60;
71
O'Neill v. Phillips [1999] 1 WLR 1092, 
72
Bilta UK Ltd. v Natwest Markets plc [2020] EWHC 546 (Ch)).
73
Insolvency Act 1986, s213
74
Companies Act 2006, s993.
75
Ibid, s214.
subsumed in the creation along wrongful (and fraudulent) trading enable the
liquidator to make a civil claim for contribution against a defendant and the
disqualification of directors often occurs in the context of civil litigation. 76

However, this section (s214) is unclear. 77 However, wrongful trading will continue
to be accountable for under s 172(3) duties, where, for example, the business is
being conducted unprofitably on the insolvency threshold.

We will now bring together the tastes and preferences of the NEDs and submit
that the UK corporate philosophy is averse to having NEDs replace executive
director’s functions.

However, NEDs can always be used as a support tool. More so as Lynn (2015)
has asserted, the same corporate agency culture still applies despite the advent
of reformation of Cadbury, as demonstrated corporates still promote asset
locking in the interest of active shareholders or directors, 78 top executives still set
the tone for the behavior of company under the aegis of enormously influential
investors,79 while directors have always and continuing enjoying a reputation of
statutory and common law provision for his duties.80 The primary objectives as it
stand today on corporate governance is to promote the success of the company
for the benefit of its members, 81 but the long-term success of a business is
dependent on maintaining relationships with stakeholders and considering the
external impact of the company’s activities. 82 Whilst that was important, the
76
Beyond wrongful trading: remaining risks and responsibilities (2020) 6 JIBFL 391.
77
LLC v Sequana SA [2019] EWCA Civ 112: provides that this duty arises as soon as directors know, or
ought to know, that the company is or is likely to become insolvent, the subjective test is negotiable.
78
Lynn A. Stout, The Corporation As Time Machine: Intergenerational Equity, Intergenerational Efficiency,
and the Corporate Form, 38 SEATTLE U. L. REV. 685 (2015), pp. 690-691.

79
The Guradian 12 November 201, Barbara Stocking, ‘Capitalism isn’t dead: it can become a force for
good in society
80
Jensen, M. (1989), ‘Eclipse of the Public Corporation’, Harvard Business Review, 67(5), pp. 61-75.
81
Companies Act 2006 s172.
82
Financial Reporting Council< ttps://www.frc.org.uk/getattachment/dda7a2e4-fd50-4710-8ed6-
860867aebf24/FRC-Lab-Tips-on-s172-Oct-20201.pdf>accessed on 02 January 2022.
arrangement has continue to influence shareholder primacy hypothetically83 or
involved a large advisory one body such as the shareholder also combined
director’s job to disengage the corporate commitment to employees and other
stakeholders social engagements.84

Therefore, the current system has a number of shortcomings according to Miles

and Proctor (2000). 85
The authors asserted that the non-executive director is
seen as a suitable learner, more dynamic and flexible.86 It now requires the
understanding of how resources might be organized or redesigned to gain from
the experience, knowledge, and skills of the NEDs to achieve competitive
advantage. The involvement of NEDs enables individuals’ corporate body to the
protection they are afforded which may dissuade actions to promote shareholder
primacy or ability to lock corporate assets for personal gain. Thus, finding for
NEDs as recommended by Cadbury committee 87 favour shareholder value within
the ambit of politicized Corporate regime. Xu Yan and Huang (2020) expressed
the view that multiple interference of knowledge sometimes proves worthless. 88
However, external engagement of NEDs is a matter of choice according to the

83
European Commission, Directorate-General for Justice and Consumers, Study on directors’ duties and
sustainable corporate governance final report, Publications Office,
2020, https://data.europa.eu/doi/10.2838/47290, p. 23.

84
Lynn A. Stout, The Corporation As Time Machine: Intergenerational Equity, Intergenerational Efficiency,
and the Corporate Form, 38 SEATTLE U. L. REV. 685 (2015), pp. 690-691.

85
Lilan Miles and Giles Proctor, Re-Designing The Office of Non-Executive Director: Has the Consultation
Document Gone Far Enough? Business Law Review Volume 21 Number 6 June 2006 p. 143.
86
Lilan Miles and Giles Proctor, Re-Designing The Office of Non-Executive Director: Has the Consultation
Document Gone Far Enough? Business Law Review Volume 21 Number 6 June 2006 p. 145.
87
Black and John C. Coffee, Jr., Hail Britannia? Institutional Investor Behavior under Limited Regulation,
92 MICH. L. REV. 1997 (1994), p. 2022.

88
Xu Yan, Minyi Huang HKUST Leveraging university research within the context of open innovation: The
case of Huawei Business School, Hong Kong University of Science and Technology, China
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valuation of the business. A breach of s 175 would not be triggered as NEDs
appointment has been authorized by the board 175 (4)(b).89

Moreover, it is worth noting the NED’s much broader input has led to
encompassing the intangibles asset in some corporations that follow NED’s
approach. Theresa May pledged to make a similar rule in the UK in 2016. The
NEDs involvement has resulted in promoting employees directly in corporate
governance as the board of directors have recorded a progressive corporate
social workforce development.90 For example, such a development as recorded is
a replica of some EU corporate governance structure like Germany 91 where
employees board of a large company to be composed of both shareholder and
employee representatives board of a large company to be composed of both
shareholder and employee representatives92 are a second key stakeholder group
in the corporate model. Arguably, the sum together in relation to chairman of the
board, the CEO of the company and the executive and non-executive inclusive
management board and worker’s director will bring the much needed corporation
transformation to a justifiable conclusion.93

89
Companies Act 2006, s 175

90
FRC 2020 Review of Corporate Governing Reporting, UK Stewardship Code 2020 (frc.org.uk), p. 34.

91
H. Hansmann and R. Kraakman, “The end of history for corporate law”, (2001) 89 Georgetown Law
Journal 439. P. 5.

92
Jüergen Schneider, Siu Y. Chan, A Comparison of Corporate Governance Systems in Four Countries
BRC working papers, School of Business, Business Research Centre, p. 7 <gv-comparison-of-corporate-
overnance-systems-in-four-countries.pdf (wordpress.com) >accessed on 09 January 2022.

93
Mitchell, A. O’Donnell and I. Ramsa, Shareholder Value and Employee Interests: Intersections
Between Corporate Governance, Corporate Law and Labour Law R. September 2004 Melbourne Law
School Legal Studies Research Paper No. 128, p. 12
In order to regain trust of the involvement, NEDs effectiveness should be an
objective test not comparable to individual traditional directors’ ab initio. Thus,
Wang identified NEDs involvement can be profitable by corporate prominence. 94
Many of the NEDs who sought to help may not have a depth of knowledge as
may have been expected as had been identified. 95 However, executive directors
in return must have regard to engage with a wide range of stakeholders in s
172(1)96 to the extent that this fiduciary duty and duty of care adopts an objective
and a subjective test under s17497 are more effectively also promotes the
success of the NEDs for the benefit of the company and other stakeholders. The
court can enforce this under common law as the director’s fiduciary duties and a
duty of care and skill (Re City Equitable Fire Insurance Co Ltd) 98 in line with the
objective of a more sustainable and stakeholder-oriented corporate governance
model. Moreover, in each of the board management roles the NEDs involvement
means the board had a rudimentary awareness that the company is prone to
problems more importantly from the angle of the director who wielded enormous
decisions power.99 In the landmark case of Re City Equitable Fire Insurance
Co.,4 Romer J held:

“A director need not exhibit in the performance of his duties a greater

degree of skill than may reasonably be expected from a person of his
knowledge and experience.” 100

94
WANG, Jiwei. The Role of a Non-Executive Director in SMEs. (2012). Business Times. Research
Collection School Of Accountancy <: https://ink.library.smu.edu.sg/soa_research/104,>accessed on 07
December 2021.
95
Ibid.
96
Company Act 2006, s 172: duty requires the directors to balance equally the interests of the company,
its members, and its stakeholders (e.g. employees).
97
Company Act 2006, s174: the standard of care adopts an objective and a subjective test.

98
[1925] 1 Ch 407).
99
The Companies Act 2006 s.40 director’s power bind the company; The Companies Act 2006 s. 302
vests the power to call a general meeting in the directors.
100
[1925] Ch.407. p. 428.
It is whether competing closely with the executive director and vice versa will
improve NEDs experience since NEDs appointments are subject to the approval
of the members of the supervisory board.

Conclusion
With the dwindling fortune of UK based industries following the Brexit and
Pandemic there are several expressions of interest for responsible commitment
investment by NED. However, the value addition largely expected depended on
the magnitude of state support or judicial funding of suitable positions for NEDs.

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