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Non-executive directors should have no business, financial or other connection with the company, apart from fees and shareholdings.
Is this statement true or false?
The answer is True (from ACCA practice test questions) but I thought False as I thought ‘shareholding’ meant taking part in the share option of the org? In the Kaplan study text it says that NEDs shouldn’t have shares in the company.
From the UK corporate governance code:
The board should identify in the annual report each non-executive
director it considers to be independent. Circumstances which are
likely to impair, or could appear to impair, a non-executive director’s
independence include, but are not limited to, whether a director:
• is or has been an employee of the company or group within the
last five years;
• has, or has had within the last three years, a material business
relationship with the company, either directly or as a partner,
shareholder, director or senior employee of a body that has such
a relationship with the company…..At least half the board, excluding the chair, should be non-executive
directors whom the board considers to be independent.So NEDs can hold shares but if they have a material shareholding they would not be independent NEDs.
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