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Non‐Executive Directors: A Question of Independence

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  • Peter Clifford
  • Robert Evans

Abstract

This Australian study utilises disclosure requirements in accordance with Australian Accounting Standards AASB 1017: Related Party Disclosures, to provide a richer description of non‐executive director characteristics. Consistent with the findings of Baysinger and Butler (1985) we find a three scale classification system for directors (insider, grey area, outsider) to better reflect board composition.The results indicate that 35% of non‐executive directors were involved in transactions with their companies which potentially threaten their independence (i.e. grey area directors). On average, our findings reveal that the combination of insider and ‘grey’ area directors would constitute a majority of the board. This could lead to companies appearing to comply with current Australian recommendations through possessing a non‐executive majority on the board, whilst in fact being controlled by internal management. This finding similarly applied to the composition of the audit committee.

Suggested Citation

  • Peter Clifford & Robert Evans, 1997. "Non‐Executive Directors: A Question of Independence," Corporate Governance: An International Review, Wiley Blackwell, vol. 5(4), pages 224-231, October.
    • Handle: RePEc:bla:corgov:v:5:y:1997:i:4:p:224-231
    DOI: 10.1111/1467-8683.00064
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    Cited by:

    1. Udeh, Francis Nnoli & Abiahu, Mary-Fidelis Chidoziem & Tambou, Liberty Ejomafuvwe, 2017. "Impact of Corporate Governance on Firms Financial Performance: A Study of Quoted Banks in Nigeria," MPRA Paper 94923, University Library of Munich, Germany, revised 07 Jul 2019.
    2. Iftikhar-ul-Amin & Nadia Iftikhar & Muhammad Yasir, 2013. "Board Composition, CEO Duality and Corporate Financial Performance," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 5(1), pages 13-27, April.
    3. Margaret McCabe & Margaret Nowak, 2008. "The independent director on the board of company directors," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(6), pages 545-566, June.
    4. George Drogalas & Michail Nerantzidis & Dimitrios Mitskinis & Ioannis Tampakoudis, 2021. "The relationship between audit fees and audit committee characteristics: evidence from the Athens Stock Exchange," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(1), pages 24-41, March.
    5. Judge, William Q. & Naoumova, Irina & Koutzevol, Nadejda, 2003. "Corporate governance and firm performance in Russia: an empirical study," Journal of World Business, Elsevier, vol. 38(4), pages 385-396, November.
    6. Geeta Duppati & Albert Sune & Navajyoti Samanta, 2017. "Corporate governance, research and development volatility and firm performance - Evidence from Spain and Ireland," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1317117-131, January.
    7. Lagasio, Valentina & Brogi, Marina & Gallucci, Carmen & Santulli, Rosalia, 2023. "May board committees reduce the probability of financial distress? A survival analysis on Italian listed companies," International Review of Financial Analysis, Elsevier, vol. 87(C).

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