This paper considers duties and liability of independent non-executive directors as authorities of advice and control in companies. It deals with the question of how non-executive directors should be made liable for mismanagement of the board, but primarily by, and particular failures of their own through breach of duty.
Rather than engaging in the debate about non-executive directors’ function and their efficiency for a business enterprise, the essay takes the latter as a given. Instead, it neutrally provides an outline of non-executive directors agreed functions, preferred skills and favoured qualities.
The paper, moreover, details on the different duties deriving from common law principles, equity, and case law. It also considers on statutories and codes as well as contractual provisions providing equivalent regulations on directors’ duties. This is to draw a complete picture of non-executive directors’ role in a company and to classify where liability can result from.
Furthermore, non-executive directors’ liability is analysed. The focus, hereby, lies on the determination of directors’ negligence. The issue is considered as to whether a court applies a different degree of negligence on non-executive directors than on executive directors. In this context, the influence of contractual provisions is contemplated. In addition, liability of non-executive directors is also compared to the liability of supervisory board members.
Subsequently, alternative mechanisms of equalizing the risk of liability, such as indemnifications, insurances, and adequate reimbursements, are examined more closely. Concluding on non-executive directors’ liability, the paper declares the loss of reputation and further “soft” sanctions as the actual sanction on non-executive directors.
Inhaltsverzeichnis (Table of Contents)
- Chapter 1: Introduction
- Chapter 2: Defining the Role of Non-Executive Directors
- A. Definition and Terminology
- I. Multinational Comparison
- II. Intermediate Comparison
- B. Non-Executive Directors' Functions
- I. Functions
- II. Independence
- III. Skills and Qualities
- A. Definition and Terminology
- Chapter 3: Non-Executive Directors' Liability
- A. Duties
- I. Duties by Common Law and Equity
- II. Statutory Duties
- III. Codified Duties
- IV. Contractual Duties
- B. Liability
- I. The Liability of Non-executive Directors
- 1. Distinction between Executive and Non-Executive Directors
- 2. Finding the Adequate Degree of Negligence
- II. The Supervisory Board
- 1. Liability of the Supervisory Board
- 2. Comparing the Liability of Non-Executive Directors and Supervisory Board Members
- I. The Liability of Non-executive Directors
- A. Duties
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper examines the duties and liability of independent non-executive directors in companies, focusing specifically on their role as authorities of advice and control. It addresses the issue of how non-executive directors should be held accountable for mismanagement of the board, particularly due to their own failures resulting from breaches of duty.
- Defining the role of non-executive directors, including their functions, independence, and required skills and qualities.
- Analyzing the various duties imposed on non-executive directors, encompassing common law principles, equity, statutory provisions, and codified duties.
- Investigating the liability of non-executive directors, exploring the determination of negligence and comparing it to the liability of executive directors and supervisory board members.
- Examining alternative mechanisms for equalizing the risk of liability, such as indemnifications, insurances, and reimbursements.
- Exploring the consequences of non-executive directors' liability, particularly the impact on reputation and "soft" sanctions.
Zusammenfassung der Kapitel (Chapter Summaries)
Chapter 1: Introduction
This chapter introduces the central question of the paper: how non-executive directors should be held liable for board mismanagement, particularly due to their own failures through breaches of duty. It also discusses the distinction between executive and non-executive directors in terms of their specific degrees of negligence.
Chapter 2: Defining the Role of Non-Executive Directors
This chapter provides a comprehensive definition of the non-executive director's position, differentiating it from the role of executive board members. It explores various terminologies associated with non-executive directors, including "outside," "external," "independent," and "gatekeepers," offering clarity on the terms used throughout the paper. The chapter also outlines the main functions of non-executive directors, including monitoring, assistance in decision-making, and their role in providing detailed information and strategic advice.
Chapter 3: Non-Executive Directors' Liability
This chapter delves into the various duties imposed on non-executive directors, examining their obligations under common law principles, equity, statutory provisions, and codified duties. It then analyzes the liability of non-executive directors, focusing on determining their level of negligence and comparing it to the liability of executive directors and members of supervisory boards.
Schlüsselwörter (Keywords)
This paper focuses on the role of non-executive directors in corporate governance, analyzing their duties, liability, and the mechanisms for mitigating risks. Key terms include non-executive directors, independent directors, board mismanagement, breach of duty, negligence, liability, supervisory board, and corporate governance.
- Quote paper
- Julia Neumann (Author), 2010, The Non-Executive Director - General Duties and Special Liability, Munich, GRIN Verlag, https://www.grin.com/document/166829
