Non Executive Director Is Known As Non Working Director Of A Firm Accounting Essay
Cadbury report is formally entitle “The Report of the Committee on the financial Aspect of Corporate Governance” was published in December 1992, followed by the recommendation of the Cadbury Committee. The establishment of the Committee in May 1991 by the Financial Reporting Council, the London Stock Exchange and the accountancy profession arose in response to the occurrence of financial scandals in the 1980’s involving UK listed Companies, which led to a fall investor confidence in the quality of company’s financial reporting.
As such the Committee addressed the financial aspect of corporate governance and the subsequently produced a Code of Best Practice, the provision which make them belief that all board of UK listed companies should comply with. The key focus provision of the Code of Best Practice related to the composition of the Board of Director’s, the appointment and independent of non-executive directors, the service contract and remuneration of executive director and company’s financial reporting and controls.
According to Adrian Cadbury, there are certain reason have been highlighted for non-executive director. (1) The non executive director broaden the strategic view of board with a widen company vision’s. (2) The non-executive director ensure that the board always have their on the interest of the company. Besides that, non-executive director also well placed to help in resolving potential conflicts between the interest of the executive and those of the shareholders. (3) Non-executive director have a clear role in appointing, monitoring and if necessary replacing the chief executive and in evaluating the executive team. (4) Non-executive director also bring awareness of the external world and the ever-changing nature of public expectation to board discussions.
Purpose of appointing non-executive directors is first to provide the board with knowledge, objectivity, judgment and balance, of a kind and to an extent which may not be available if the board consists only of full time executives and secondly to ensure that the performance of the executive director and the management of the company are up to the standard required.
Adrian Cadbury focused on the procedures necessary for the selection and appointment of non-executive director in ways that are rigorous and will add value to the board. He proposed four stages to the selection process. (1) Is a need to identify gaps in experience, personality, age and skills round the board table, and then decide what kind of person would best complement the attributed on the existing board members. (2) to institute a purposeful search for candidate who meet the agreed requirement with a stress on the importance of competition and of having more than one candidate to choose from, in order to find the best available candidate from the point of view of effectiveness and because it gives confident to directors choose in this way. They take their place at the board table on equal terms with their follow board members. (3) Board as a whole should be involved in both steps. There is a clear advantage in working with fellow board member who has had say in choosing them. Equally important, it leads to mutual respect. The executive directors reach the board in competition with their fellow executive and need to know that the non-executive director were chosen by the same route, openly and no merit. Otherwise, new outside director have to play them in to overcome the suspicion that they are there largely as friends of the chairman or worse in return for a favors. (4) There needs to be some means of evaluating the performance of the board as a whole and of the individual directors. Boards cannot know whether they are as effective as they might be without undertaking some form of assessment. It is through such an evaluation that gaps in board membership are identified.
According to the Higgs Report, commissioned by the British Government and published in January 2003. The focus of this report is on “Review of the role and effectiveness of non-executive director. Base on Higgs Report, the description of the role of the non-executive director is proposed for incorporation into the Code. Besides that, guidance is offered for non-executive directors on how to maximize their effectiveness. The non- executive director should meet as a group at least once a year without the chairman or executive director present and the annual report should include a statement on whether such meetings have occurred. Meanwhile, the prior to appointment, potential new non-executive director should carry out due diligence on the board and on the company to satisfy themselves that they have the knowledge, skills, experience and time to make a positive contribution to the board. Therefore, the guidance on pre-appointment is due to diligence offered. Besides that, the responsibilities of non-executive director are base on strategy, performance, risk, and people. Strategy is base on the contribution to the development of company strategy. Non-executive director should examine the performance of the management in meeting agreed goals and objective and monitoring, and where necessary removing, senior management and in succession planning. Non-executive directors should satisfy themselves that the financial information is accurate and that financial control and systems of risk management are robust and defensible. They should be competent enough to monitor the integrity of the financial statement of an organization and be able to review significant financial reporting judgments. They should also review the company’s financial control systems and check the effectiveness of the whole systems. Non-executive director are responsible for determining appropriate levels of remuneration of executive director and have a prime role in appointing, and where necessary removing, senior management and in succession planning. Besides that, the report also proposes certain limitation which would be placed on the number of chairmanships which could be held. Role of Non-executive director has change in term of the board, the chairman, the role of non-executive director and many more.
Composition of the board
Higgs Report requires that the board should include a balance of executive and non-executive directors. This is to ensure that no individual or group can dominate the broad’s decision making. In the board, non-executive directors must comprise not less than one-third of the board and a majority of the non-executive directors should be independent.
Higgs report emphasizes the importance of audit committees. The Code comprises at least three members of all whom should be independent non-executive directors. The remuneration committee should have delegated responsibility for setting remuneration for all executive directors and the chairman. The committee should also set the level and structure of compensation for senior executives. Besides that, the non-executive director should appoint on all three principal board committees such as audit, nomination and remuneration.
Base on the comparison between Cadbury report and Higgs Report the impetus for changes came from major financial institutes concerned by the poor quality and accuracy of financial reporting which threatened to underpin investor confident. The publication of Cadbury code in 1992, were issued a range of recommendation for good corporate governance in a Code of Best Practice. Many of these recommendation applied to UK listed companies were aimed at improving financial reporting, the effectiveness of the board, the rights of directors in getting information and their accessibility to information particularly to the services of the company secretary and other professionals. Besides that the code is based on openness, integrity and accountability. The boards of directors are accountable to their shareholders and both play their part in making that accountability effective. The code includes the role of the board of directors, non-executive directors, executive directors and the method for financial reporting and control. Meanwhile, Higgs Report is focusing on the role and effectiveness of non-executive directors. This is to increase the accountability of the boards. This is because the board should set the company’s value and standards and ensure that it is obligations to it are shareholders and other’s are understood and met. The effective non-executive director is to uphold the highest ethical standards of integrity and probity. Besides that, it also support executive in their leadership of the business while monitoring their conduct. Meanwhile, it also promotes the highest standards of corporate governance and seeks compliance with the provisions of the Code wherever possible.
What is the name of the Company and when does the financial year end?
The name of the Company is Malayan Flour Mills Berhad. The financial year ended for Malayan Flour Mills Berhad on 31 December 2009.
Where is the registered office of the Company?
The Registered Office of the Company is at 22nd Floor, Wisma MCA, Jalan Ampang, 50450, Kuala Lumpur.
When and where was the AGM held?
The Company’s 49th Annual General Meeting (AGM) was held on 17 June 2010 at the Auditorium, 3rd Floor, Wisma MCA, Jalan Ampang, 50450, Kuala Lumpur.
What was (were) the special purpose(s) of the AGM?
Proposed Amendments to the Articles of Association of the Company (Special Resolution)
Were there any proceedings which require special notice to be given? What are they?
Proposed Amendments to the Articles of Association of the Company
How many days; notice was given for the special notice (if any)?
21 clear days
How many days notice was given for the AGM?
16 clear days
Who are the auditors of the Company?
Who is (are) the Company Secretary (ies)?
Mah Wai Mun is the Company Secretary of Malayan Flour Mills Berhad.
What do you consider is the role of the Company Secretary (ies)?
Company Secretary is the officer appointed by the directors of a firm as responsible for ensuring that firm’s legal obligations under the corporate legislation are complied with. The duties of Company Secretary include (1) calling meetings, (2) recording minutes of the meetings, (3) keeping statutory record books, (4) proper payment of dividend and interest payments and (5) proper drafting and executive of agreements, contracts and resolutions.
In what way(s) did the directors retire from office?
The retirement of director’s are been done by rotation. (Page 5 to page 8)
What statutory declaration was given by the directors? Why do you think this is necessary?
The Director primarily responsible for the financial management of Malayan Flour Mills Berhad, do solemnly and sincerely declare that the financial statements set out on pages 39 to 87 are to the best of his knowledge and belief, correct and the director make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.
What did you observe was (were) the roles of the Non-executive directors?
In the Annual Report, it clearly stated the roles and functions of the Board including the executive and non-executive directors are defined in the Board Charter which regulates how business is to be conducted by the Board in accordance with the principles of good Corporate Governance. The company has a unitary Board, currently consisting of four executive director and five non-executive director. The presence of the Independent non executive directors fulfills a pivotal role in corporate accountability and provides unbiased, objective and independent view, advice and judgment to the decision making process of the Board. For the position of independent non-executive director, the Nomination Committee also evaluates the candidate’s caliber, credibility and necessary skill and experiences to bring an independent judgment and view to matter under consideration.
If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please click on the link below to request removal: