How Independent, Competent and Incentivized Should Non-Executive Directors Be? An Empirical Investigation of Good Governance Codes

17 Pages Posted: 22 Feb 2010

See all articles by Alessandro Zattoni

Alessandro Zattoni

University of Bocconi - Strategic and Entrepreneurial Management

Francesca F. Cuomo

affiliation not provided to SSRN

Abstract

There is a commonly held conviction among governance scholars and practitioners that increasing the number of non-executive directors may have beneficial effects on board practices. This view has gained momentum after each wave of scandals. Given the relevance of the issue in governance studies and practices, the aim of this paper is to investigate how independent, competent and incentivized non-executive directors should be according to governance scholars and board best practices. To answer this question, we conducted a review of the literature on non-executive directors. We then collected corporate governance codes developed worldwide at the end of 2005, and made a comparative analysis of their recommendations about the independence, the competencies and the incentives of non-executive directors. Our results show that (i) non-executive directors' independence is a commonly recommended governance practice, the meaning of which differs widely among countries; (ii) non-executive directors' competencies and incentives are not considered a governance issue to be regulated in detail; (iii) agency theory and the search for appropriate board demography tend to dominate the recommendations of governance literature and codes. Our findings have implications for both research and practice.

Suggested Citation

Zattoni, Alessandro and Cuomo, Francesca F., How Independent, Competent and Incentivized Should Non-Executive Directors Be? An Empirical Investigation of Good Governance Codes. British Journal of Management, Vol. 21, Issue 1, pp. 63-79, March 2010, Available at SSRN: https://ssrn.com/abstract=1555270 or http://dx.doi.org/10.1111/j.1467-8551.2009.00669.x

Alessandro Zattoni (Contact Author)

University of Bocconi - Strategic and Entrepreneurial Management ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

Francesca F. Cuomo

affiliation not provided to SSRN

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