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l In addition, the issue of independence is always the strongest and weakest link of NEDs. According to the Cadbury Committee, “ non-executive directors should bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct.” Independence dictates that, NEDs must at all times act with complete honesty, integrity and candour and use due care, skill and diligence in the course of taking any action affecting the company. In fact, this standard is just a ideal, it is difficult to use in the practice, because it is so strict and heavy responsibility will make people flinch to be a NED.
V. Conclusion
The foregoing description of the duties of directors has implied the development of executive or non-executive directors’ duties. First, their duties of loyalty and good faith are exceptionally strict and their duties of care, skill and diligence exceptionally lax. [24] Second, in either case, the emphasis has shifted from directors being honest and meticulous to being competent, diligent and skillful.[25] Third, directors will be judged on the functions that they undertake and their qualifications will not prejudice them. Lastly, the requirements for directors to perform their duties are more strict, “even the non-executive director cannot take a passive role in the organisation” and they must “actively seek to understand the financial affairs of the company”.[26]
As a central part of corporate governance, the role and function of directors are taken in an important position. UK government has been undertaken a wild range of analysis. In particular the scope and content of the duties of directors is under examination.[27] At present, the law related to the duties of care, skill and diligence of both executive and non-executive directors is characterized by uncertainty and confusion. As a result, legislative development is necessary.
Changes may be in the wings. The Law Commission has recently published a report “Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties” (1999) Law Com261. The Commission has recommended a statutory statement of the principal duties of directors, bringing practice in line with other countries, such as Australia. The aim is for the government to take the recommendations of this report into account when the present review of company law is finished in 2001. The report suggests that directors'' duties are set out in a legally enforceable statute that would lay directors open to civil and criminal proceedings and disqualification for any breaches. The broad principles cover loyalty to the company, exercising your judgment, insider trading, dealing with conflicts of interest and protecting the interests of employees. The aim is to set a high standard of behaviour, although judges have, more recently, taken the view that higher standards must apply in cases brought before them.[28]
Although wide consultation on the details is continuing, the Review has generally accepted the idea and set out a Trial Draft. It is observed that these developments will alter the nature of directors. Judge made rules will go. Duties will be formulated in statute law and more readily available to directors. It may well help to bring to the notice of directors what is expected of them by the law, in general terms.
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