2.5.4 Dual roles of NEDs in developing strategy and monitoring

The role of NEDs has clearly been enhanced and made more important. NEDs have an active role in strategic decision making and they monitor the executives.

"NEDs can suffer from schizophrenia in that they should be encouraging the development of the company, 'the upside', while at the same time monitoring risk to the company, 'the downside'. Working with the executive directors on these areas should lead to greater success for the company and hence enhance shareholders value."1

Higgs writes in his review in 6.1 that Cadbury and Hampel identified the tension between these two elements. However, Sir Adrian Cadbury no longer sees the tension as worrisome. He regards the two roles as important and the strategy part as particularly important. Higgs writes in 6.2 of his review that "based on 40 in-depth interviews with directors, the research found that while there might be a tension, there was no essential contradiction between the monitoring and strategic aspects of the role of the non-executive director. An overemphasis on monitoring and control risks non-executive directors seeing themselves and being seen, as an alien policing influence detached from the rest of the board. An overemphasis on strategy risks non-executive directors becoming too close to executive management, undermining shareholder confidence in the effectiveness of good governance."2 For this reason there is so much discussion about the independent qualities of directors and balance in the board.

Sir Geoffrey Owen:

Now, one can still ask: if the outside director is so deeply involved in the strategic thinking in advance, can he then monitor? The answer in the UK is yes. Exactly, because he is well-informed and has been privy to the strategic decisions. He is able to monitor effectively and take a well-reasoned critical view, because he understands the building blocks of the decisions, good or bad, in which he has participated.