Non-executive directors should:
This Guideline concerns the role of Non-Executive Directors (NEDs).
NEDs are not part of management of a company. Their purpose is governance, specifically to provide oversight of management, the latter being responsible for the day-to-day operations and running of the company.
The Guideline suggests that NEDs should focus on two matters: strategy and management’s performance.
Strategy sets the direction in which the company is heading. Here, the Board is required to constructively challenge and help management with the development of a strategy, which the Board should eventually approve.
Since management is responsible for delivering on the strategy and the company’s performance, one of the Board’s roles is to appropriately incentivise management in this respect. This means setting objectives and goals for management, monitoring the results and guiding management, and assessing and remunerating management on its performance. (In extreme cases, the Board’s responsibility also includes changing management if the latter is unable to deliver on the mutually agreed strategy and objectives.)
The rationale for highlighting these two areas of strategy and management’s performance) is that they are much intertwined with the work and functioning of management. The IDs would be in a much better position than the non-independent members of the Board (the NEDs) in driving the oversight of, and ensuring objectivity in these two areas.
B. SGX Disclosure Guide
C. Related Rules and Regulations
- Section 157(1) of the Companies Act: As to the Duty and Liability of Officers.
D. CG Guides
- Board Guide 5.2: General Duties of Directors [Director Duties].
- Board Guide 5.8: Types of Directors [Director Duties].
- Board Guide 5.10: The Non-Executive Director [Director Duties].
- NC Guide 3.2: Types of Directors [Nomination and Appointment Process].
- NC Guide Appendix 3C: Types of Directors [Nomination and Appointment Process].
E. Related Articles
- “Professionalising independent directorship” by Benedict Lim. (458KB)
- “Role of non-executive directors in strategic decision-making” by Eugene Kang. (56KB)
- “Independent directors: Neither tigers nor pussy cats” by Anabelle Yip. (255KB)
- “Perspectives from thought leaders: Revisiting board composition & roles and relationships between directors inter se and with management” by JY Pillay. (368KB)
- “The idea of a ‘professional independent director’ ” by Umakanth Varottil. (130KB)
- “Strategy: More than a board game” by Wilson Chew. (46KB)
- “Corporate strategy in a ‘VUCA’ world” by David Chew. (46KB)