Protecting investors from controlling shareholders

DISCUSSIONS on corporate governance, particularly in the aftermath of a corporate governance scandal, tend to focus on the non-executive directors, and in particular the role and performance of independent non-executive directors (INEDs).

The role of the INED came to the forefront with the Cadbury Report in the UK almost 25 years ago. That report is often considered the philosophical root from which many subsequent codes of corporate governance have grown. It acknowledged the role of INEDs in promoting business success, but also in monitoring executives, noting that "the specific interests of the executive management and the wider interests of the company may at times diverge". So, whilst non-executive directors owe a fiduciary duty to the company, there is an acknowledgement that they have a role to monitor and challenge management on behalf of both the company and shareholders.

The UK saw a market failure and sought to correct it - arguing that dominant management, with interests sometimes at odds with the company, could be reined in by an active and engaged independent element on the board.