Question

QUESTION 2 Laa Bumba Bhd has recently undertaken a board effectiveness review and, as a result, the CEO, Anang, is questioning the effectiveness of the non-executive directors (NEDs). The current board has been long-standing and the company’s activities and its industry have changed and developed quite significantly over recent years. Anang is concerned that many of the NEDs do not have specific industry experience and may not understand the full scope of the company’s current operations. One of the NEDs is also due to retire and a new NED will be joining the board shortly. Anang has approached you, for assistance. Required

(b) Analyse the criticisms which are made regarding the effectiveness of NEDs.

(c) Discuss how Laa Bumba can maximise the effectiveness of its NEDs, particularly in view of Anang’s concerns.

(c) Advise on the type and range of enquiries that an individual should make when considering an appointment as a NED.

Answer 1

Anang, the CEO, is concerned that many of the NEDs do not have specific industry experience and may not understand the full scope of the company’s current operations.

Generally Non Executive Director's take only annual remuneration from the company & does not involve & take part in the decision making part of the company. But if it is involved in the decision making process of Company then the Non Executive Director sholud be well educated & relevant experience in the industry. Otherwise the Company will suffer in the decision making part.

Laa Bumba can maximise the effectiveness of its NEDs, particularly in view of Anang’s concerns by removing not required NED's & appointing more Capable & Effective NED's,

While considering an appointment as a NED, an individual should make enquiries regarding the following points:-

1.) Integrity, Objectivity & Independence.

2.) Competence & Work Skills.

3.) Valid Director Identification Number has been alloted

4.) Not disqualified under any law to act as a NED.

Note:- A non-executive director or external director is a member of the board of directors of a company or organisation who does not form part of the executive management team.