Leadership theory

Role of the Board

It is argued that the role and the effectiveness of the non-executive director needs to be considered in the context of the board as a whole.

The role of the board

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  The board is collectively responsible for promoting the success of the company by directing and supervising the company’s affairs.
  
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  The board’s role is to provide entrepreneurial leadership of the company within a framework of prudent and effective controls which enable risk to be assessed and managed.
  
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  The board should set the company’s strategic aims, ensure that the necessary financial and human resources are in place for the company to meet its objectives, and review management performance.
  
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  The board should set the company’s values and standards and ensure that its obligations to its shareholders and others are understood and met.
  

In the UK, the general legal duties owed to the company by executive and non-executive directors are the same. All directors are required to act in the best interests of the company. Each has a role in ensuring the probity of the business and contributing to sustainable wealth creation by the company as a whole.

Included in the Companies White Paper is a draft statutory statement of directors’ duties to act, subject to the company’s constitution, to promote the success of the company for the benefit of its shareholders as a whole. In determining how best to promote the success of the company, directors must where relevant take account of “material factors”. As set out in the draft statutory statement, these include long as well as short term consequences of their actions, the need to foster business relationships, including with employees, suppliers and customers, impact on communities and the environment, business reputation and fairness between different shareholders.