Examining the Non‐Executive Director's Role from a Non‐Agency Theory Perspective: Implications Arising from the Higgs Report
| Author | Kevin G. Corley |
| DOI | http://doi.org/10.1111/j.1467-8551.2005.00443.x |
| Date | 01 March 2005 |
| Published date | 01 March 2005 |
Examining the Non-Executive Director’s
Role from a Non-Agency Theory
Perspective: Implications Arising from the
Higgs Report
Kevin G. Corley
Department of Business Administration, College of Business, University of Illinois at Urbana-Champaign, 1206
S. Sixth St., Champaign, IL 61820, USA
Email: kgc2@uiuc.edu
In January of 2003, the British government
published Derek Higgs’ report on the role and
effectiveness of non-executive directors on British
corporate boards (Higgs, 2003). The govern-
ment’s original request for the report came in
the wake of several high-profile corporate scan-
dals, most notably those involving Enron,
WorldCom and Tyco in the USA. Its intent was
to help prevent the emergence of a major
corporate governance failure within a British
corporation by strengthening the Combined
Code of Corporate Governance (Financial Re-
porting Council, 2003) to better reflect theory
and best practice. It followed in the footsteps of
past investigations into corporate governance
issues commissioned by the British government
including, but not limited to, the Cadbury Report
(Committee on the Financial Aspects of Corpo-
rate Governance, 1992), the Greenbury Report
(Study Group on Directors’ Remuneration,
1995), the Hempel Report (Committee on Cor-
porate Governance, 1998) and the Turnbull
Report (ICEAW, 1999).
Higgs commissioned three studies to collect
and analyse data on British corporate boards to
be used in his final report. One of those studies
involved in-depth interviews with 40 board
chairmen and non-executive directors, a task that
was undertaken by the research team of Terry
McNulty, John Roberts and Philip Stiles. Con-
trary to several of the structural and regulatory
recommendations within the larger Higgs review
that were criticized by corporate and investment
communities (see Jones and Pollitt, 2004 for an
in-depth discussion of such criticisms) and which
have been subsequently scaled back by the
Financial Reporting Council responsible for
changes to the Combined Code (Keenan, 2004),
the McNulty, Roberts and Stiles (2003) report
focused on the behavioural dynamics of board
members (especially non-executive directors) that
might promote board effectiveness. In line with
Higgs’ original commission, McNulty, Roberts
and Stiles’s report was both descriptive and
prescriptive in nature, including several recom-
mendations about behaviours that could help
strengthen board effectiveness by creating ‘in-
telligent accountability’ (as opposed to distant
accountability). As McNulty, Roberts and Stiles
summarized, ‘Board structure and composition
condition but cannot determine board effective-
ness. Instead, board effectiveness depends upon
the experience, skill and judgement of individual
executive and non-executive directors and the
ways in which they combine to shape board
conduct and relationships’ (2003, p. 2).
Following the publication of the Higgs review,
and in light of the controversy it sparked within
the UK, we asked John, Terry and Philip to
supplement their contribution to the Higgs
review with a consideration of the theoretical
implications arising from their research. The end
British Journal of Management, Vol. 16, S1–S4 (2005)
DOI: 10.1111/j.1467-8551.2005.00443.x
r2005 British Academy of Management
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