Accountability in the Boardroom: Conceptualising Non-Executive Directors as Guardians of the Firm

Good corporate governance relies on establishing and enacting effective accountability in the boardroom. Non-executive directors (NEDs) are critical to creating accountability in the boardroom. However, in exercising... [ view full abstract ]

Good corporate governance relies on establishing and enacting effective accountability in the boardroom. Non-executive directors (NEDs) are critical to creating accountability in the boardroom. However, in exercising accountability, prior literature has highlighted the existence of conflicts between NEDs’ monitoring and advisory roles. Taking an opposite perspective, the paper examines how NEDs combine and balance their monitoring roles and advisory roles and resolve conflicts between shareholders, directors, managers and the firm. Twenty-four in-depth interviews are conducted with (i) directors, (ii) shareholders and (iii) firm professional advisors.

Contrary to prior literature, the paper finds that effective NEDs do not experience role conflicts. We argue that the reason for this is that effective NEDs understand that their higher-order duty is to protect the interests of the firm and thus, they conceptualise their role by reference to their guardianship of the firm. When NEDs mis-conceptualise their higher-order duty more towards (i) protecting shareholders’ interests (monitoring role) or (ii) supporting management (advisory role), they are judged to be less effective by managers and shareholders, respectively. NEDs’ higher-order duty to look after the best interests of the firm resolves conflicts arising from NEDs’ position as agents of shareholders and advisors of managers. A novel alternative perspective is invoked – that of guardianship – to explain the mutual character of the accountability relationships, complementing and contrasting with the “creating accountability in the boardroom” perspective.

Non-executive directors Higher-order duty Guardianship of the firm [ view full abstract ]

Non-executive directors
Higher-order duty
Guardianship of the firm