1 - The role of the board

Summary

Introduction

Since the early 1990s we have seen three important changes in the composition and behaviour of boards of directors in UK public companies: first, the decision by most though not all large firms to separate the posts of Chairman and Chief Executive and to appoint to the chairmanship an outsider, that is, someone who is not, and has not previously been, an employee of the company; second, the increase in the number and influence of independent or non-executive directors, who now occupy at least half and usually a majority of board seats, and dominate board committees; and, third, the greater emphasis on the monitoring function of the board, both in evaluating the performance of the executive team and in ensuring that the company complies with what has become an increasingly onerous set of corporate governance guidelines or rules.

These three changes, taken together, represent a distinctively British approach to corporate governance. In the US, most companies combine the roles of Chairman and Chief Executive Officer in a single person, although there is some pressure from corporate governance reformers for separating them. US public company boards usually contain no more than one or at most two executive members (the Chief Executive and the Chief Financial Officer), whereas the executive component of the typical British board is larger, often including heads of major divisions and/or managers with functional responsibilities.