An Analysis of Non-Executive Directors in the Context of Company Law

This report provides a comprehensive analysis of non-executive directors within the framework of company law. It explores their qualifications, roles, duties, and responsibilities in ensuring good corporate governance. The report references key cases such as ASIC v Healey and ASIC v Macdonald to illustrate the legal duties and liabilities of non-executive directors. It also examines the appointment process and the impact of non-executive directors on corporate decision-making, highlighting their importance in monitoring executive management and contributing to strategic direction. Furthermore, the report discusses commentaries from organizations like the ASX and the Australian Institute of Company Directors regarding the expected standards and practices for non-executive directors, emphasizing their role in providing independent oversight and adhering to the Corporations Act 2001. Desklib provides access to this document and many other solved assignments for students.

Running head: COMPANY LAW
Company Law
Name of the Student
Name of the University
Author Note

1COMPANY LAW
Non-executive directors
A non-executive director is such a member of the board of director of the company who
is not a part of its executive team. They are involved in planning exercises and policymaking,
though they are not involved in the daily management of the corporation.
Qualification of Non-executive directors
There is no such specific qualification required for a candidate for non-executive director
role. They just have to be fit for the corporate governance of the company. They should have the
basic leadership, analytical and decision making skill.
Role of non-executive directors in the company they are appointed
As stated in the case of ASIC v Healey (2011) FCA 717 at 166; 172 non executive
directors have the same role as an executive director in regards to the governance of the
company, performance and recruitment of CEO, making strategic direction for the organization,
monitoring the risk factors in the organization, making contribution to the development of the
board and organization (Daoud, 2013). . Though, they may not have the same amount
operational knowledge about the organization as the executive directors.
Duties and responsibilities expected from the non-executive directors
Australian Securities and Investments Commission v Macdonald (No 11) NSWSC 287 is
a landmark case to decide the duties of non-executive directors (Melbourne University Law
Review, 2018). The non-executive directors are responsible for acting with care. They have a

2COMPANY LAW
wider view to the external factors of the company and they play an important part in strategic
direction. They are duty bound to monitor the performance of the executive management
regarding the progress towards achieving the objectives of the company. They have the
responsibility to determine the remuneration of the executive directors.
Appointment of non-executive directors to fit in with the good corporate
governance within the company
Corporate governance means the system of practices or rules which directs and controls a
firm. It is the balance of interest of stakeholders of the company. Every company is expected to
adhere to a governance guideline. As per the Cadbury Report (1992) non-executive directors
have an influence in the decision making of the board (Zalewska, 2014). They are the essential
part of a good corporate governance strategies. They have the power to monitor over the
executive directors and control their action.
Liability of non-executive directors within a company
Non-executive directors have less liabilities than an executive directors. They are
involved in the daily management of a company. They are not bound to provide constant
attention of a company. Though the non-executive directors are liable to share the legal duties of
the executive directors, they have personal liability for their acts in directing the company.

3COMPANY LAW
Commentaries in ASIC, ASX. the media, or any other organization regarding
the duties and roles of a non-executive directors
It is provided in the ASX that the roles and responsibilities of the non-executive directors
should be stated in a written agreement, usually in the form of a letter of appointment (Corporate
Governance Principles and Recommendations, 2018). The agreement should mention the terms
of appointment, remuneration and others. The Australian Institute of Company Directors, in their
report stated that the non-executive directors should comply with the basic requirements of the
Corporations Act 2001. They have a duty to take care same as the executive directors. According
to the Institution of Directors, non-executive directors have a role to provide an independent
oversight to the board.

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Reference List
Corporate Governance Principles and Recommendations. (2018). Retrieved from
https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-
recommendations-3rd-edn.pdf
Daoud, O. F. I. (2013). A model for the role and effectiveness of the non-executive
directors (Doctoral dissertation, School of Law).
Melbourne University Law Review. (2018). Retrieved from
http://www5.austlii.edu.au/au/journals/MelbULawRw/2009/34.html
Zalewska, A. (2014). Challenges of corporate governance: Twenty years after Cadbury, ten years
after Sarbanes–Oxley.