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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

In a listed company, which of the following is the most accurate description of the role of a non-executive director on the board?

A non-executive director brings independent judgement to the board and scrutinises and challenges executive management. They do not run daily operations, do not act as auditors, and should not represent only one shareholder; their role is oversight of the executives.

  1. ATo manage the day-to-day operations of the business on behalf of the chief executive
  2. BTo bring independent judgement to board decisions and to scrutinise and challenge executive managementCorrect
  3. CTo act as the company's statutory auditor while serving on the board
  4. DTo represent only the interests of the largest shareholder
  5. To approve every operational transaction before it is executed

Explanation

Non-executive directors are not involved in daily management. Their value lies in independent oversight, constructive challenge of executives and monitoring performance. Day-to-day management belongs to executive directors, and auditors must be separate from the board.

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