ROLE OF THE NON-EXECUTIVE DIRECTOR IN AUSTRALIA

Australia’s system of non-executive directors

Australia ’s system is characterised by a majority of non-executive directors. This is not the case in many other countries, where different models are used to fit the prevailing business culture and often a greater concentration of executive roles.

No ‘one size fits all’ approach

The AICD does not believe in prescribing a best practice board structure that fits everyone. There is no ‘one size fits all’ approach to board composition and any of the multiple models used must have a complete set of characteristics to ensure that they work well.

Non-executive directors govern – not manage

Non–executive directors govern the company on behalf of shareholders, by whom they are elected. They must act in the interests of the company as a whole, in accordance with the law. They do not run the company as this is the responsibility of the executive management team.

Non-executive directors are part time

A non-executive director in Australia is currently a part time role with a time commitment of about a fifth of a senior management position. This part time nature needs to be acknowledged and considered before responsibility is added via legislation.

If responsibility is increased this will have an inevitable impact on the time required and the remuneration demanded. It will also alter the non-executive role towards an increasingly executive one as non-executives directors attempt to meet their growing responsibilities.

Non-executives directors add value to a board through:

• Assisting the board in appointing, encouraging, assessing and, if necessary, replacing the CEO. This is the most important function of the board overall.
• Bringing an external, alternative perspective
• Representing shareholder interests
• Questioning, encouraging and monitoring the management
• Bringing relevant competency, experience, legitimacy and ethical behaviour
• Ensuring proper corporate governance process is followed with integrity, including financial reporting and disclosure and compliance with the law and other requirements (such as Stock Exchange Listing Rules)
• Approving overall strategy, budgets and large financial decisions such as capital expenditure