2.4 Independence

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2.4 Independence
Effective from November 2003, a non-exhaustive list of 7 criteria (as shown in Appendix 1) has been incorporated in the UK Corporate Governance Code to assess a director’s independence (Financial Conduct Authority 2013). The Code requires the board to determine and disclose in their annual report whether each non-executive director is independent in character and judgement. Independence is a quality demonstrated by an individual which would not be unduly influenced by interested parties/conflict of interest that could materially interfere with their objective judgement (Campbell 2011).

According to Fama and Jensen (1983), internal managers have specific valuable information about the company’s operation which could assist …show more content…
The crucial role of corporate governance mechanism on the organisations’ long-term sustainability has been further reiterated from the latest changes to the UK Corporate Governance Code in September 2014. Among the key changes, the board is expected to include a more robust identification, assessment as well as management of the significant business risks, which includes fraud risk (Grant Thornton 2014). Stephen Haddrill, the CEO of FRC, has suggested that such changes are necessary "to strengthen the focus of companies and investors in the longer term and the sustainability of value creation” (FRC …show more content…
Companies often do not provide explanation or only include boiler plate disclosures which fail to identify specific circumstances that could justify for the non-compliance (Arcot, Bruno and Grim 2005). This particularly can be seen in Grant Thornton 2013 Corporate Governance Review that shows 43% of FTSE-350 companies do not fully comply with the UK Corporate Governance Code, and provisions related to the balance of independent directors on the board have been cited to be the highest area of non-compliance (12.8% of FTSE 350 companies). Nevertheless, 58% of the non-compliant companies have not given any justification for the non-compliance or only provide a general comment (Grant Thornton 2013). Therefore, the key findings and conclusion of this study would need to be interpreted in the light of the quality of

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