I.Introduction
  Change is ubiquitous in contemporary society, and no where more so than in the company operations. Effective operations of companies contribute to the economy and society. However, corporate failure, of course, will always be with us. Enterprise creates prosperity but involves risk. No system of governance can or should fully protect companies and investors from their own mistakes. After the economic convulsions of 1997 and 1998 in Southeast Asia, the economics of the world are in a low tide. Governance shortcomings have contributed to falling markets.As we know, reform of company law is being actively debated in the United Kingdom. There is over 150 years history of UK Company Law, it “ has gone out of date and become encrusted with all sorts of amendments and case law”. [1] Radical changes are required to restructure the modern corporate governance system in the United Kingdom.
  
  Executive and non-executive directors play a central role in UK corporate governance. As a company has no physical but only a legal existence, the management of its affairs is entrusted to the directors whose exact position in relation to the company is, however, rather hard to define. [2] The interest of directors and shareholders are always coherent and conflict, which becomes, an important governance problem. Non-executive directors, as a crucial role to improve company performance and accountability, were introduced in the in U.S.A in the 1960s. From the early 1980s onwards there was a growing awareness of the role of it in the UK, [3] and non-executive’s contributions in the effective and robust boards were widely recognized. The company Law Review noted “ a growing body of evidence from the US suggesting that companies with a strong contingent of Non-executive produce superior performance.”
  
  Recently a voice raised to reform the present law on executive directors’ duties. They think the law is desirable in order to encourage companies to form long-term productive relationships with their employees, customers, and suppliers. Reformulating the board’s responsibilities might help in combating the short-term attitudes prevalent in the corporate sector that contribute to the neglect of co-operative relationships, and thereby increase the wealth-creating capacity of British business. [4] On the other hand, the debate of the role of non-executive directors never stops. What is the role of NED, the “watch dog” or “biggest and the most dangerous—nonsense”? [5] Are NEDs truly independent? …This essay will concentrate on the development of the law on director’ duties and the current debate surrounding the position of non-executive directors two issues to attempt to get a clue of the corporate governance framework.
  
  
  
  II.Executive and Non-Executive Directors
  
  All registered companies must now have directors. The private limited company must have at least one director, and there must at least two in other companies. [6] Anyone can be appointed as director unless disqualified by the Articles except for:
  
  l An undischarged bankrupt, unless her or his appointment is approved by the court;
  
  l One disqualified by court order;
  
  l The company’s auditor.
  
  There is no legal or statutory definition about executive and non-executive directors, as we know, they are all appointed by the board. Executive directors are those who, in addition to their roles as directors hold some executive or managerial position. They are company employees, and they are required to be involved in the day-to-day management of the company. They have no right under the Articles to remuneration, notice or compensation for loss of office but they have the same rights as other employees under the employment legislation provided they receive a salary. They should therefore be employed under a service contract setting out their terms and conditions of employment.
  
  On the other hand, a person with financial, legal or technical expertise can be appointed non-executive director. Professor Saleem Sheikh defined NED as: “those independent directors who, unlike executive directors, do not hold any executive or management position in the company in addition to their role as a member of the board, but who are subject to all the duties applicable to executive directors that are established by law.” [7]Unlike executive directors, NEDs are expected to do little or nothing other than to attend a reasonable number of board meeting and, perhaps, some of the committees that the board may establish. [8] It should be noticed that unlike executive directors, non-executives are not employees of the company, and are not expected to devote their full time and attention to the company. Their legal position is not restrained by contracts of employment or service agreements and they are likely to have no mandate or signing powers for the company. [9]
  
  
  
  III.Directors’ duties
  
  The law imposes duties on directors. If a person does not comply with his duties as a director he may be liable to civil or criminal proceedings and he may be disqualified from acting as a director. A director is a constitutional monarch bound by the terms of the company’s charter set out in the Memorandum and Articles.
  
  A. the development of directors’ duties
  
  The law on directors’ duties has developed slowly over about 150 years. [10] It is often stated that directors are trustees and that the nature of their duties can be explained on this basis. Prior to 1844 most joint stock companies were unincorporated and depended for their validity on a deed of settlement vesting the property of the company in trustee. [11] There, the director’s role is to protect and preserve the asserts for the beneficiary.
  
  With directors of incorporated companies the description “trustees” was less apposite but it was not unnatural that the courts should extend it to them by analogy. [12] Someone thinks the directors are agents of the company rather than trustee of it or its property. However, in the UK there have been attempts to solve the problem by drawing heavily and easily on pre-existing concepts of the law of trusts and, until recent years, largely ignoring the challenges posed by the entrepreneurial function. [13] As a result this area of law was split between the courts of common law and Chancery, the directors’ duties fall into two aspects: common law duties of care and skill and fiduciary duties.
  
  In 1980, the enactment of the unfair prejudice remedy and the subsequent dynamic case law development has added a fresh air to the old ideas concerning directors’ duties. Unfair prejudice law becomes a very broad type of directors’ duty.
  
  
  
  B. Directors’ duties
  The director’s duties are usually considered when a company fails for some reason. When a company becomes insolvent or is liquidated, for instance, questions may be asked about the reasons for such a failure. In such circumstances, the actions of the directors will inevitably be examined, questioned and challenged. As a result, the duties of directors have primarily been sculptured by judges, because of legal action taken by parties that have suffered a loss. [14]
  
  The following duties represent the present liability that directors face in a personal capacity:
  
  a. Fiduciary duty
  
  Each director owes an individual duty to the company to act in the best way they can in the interests of the company. The scope of an individual director’s duty will, in part, depend on their role within the management of the company's affairs. It is possible for a director to breach this duty if they knew of the likely serious consequences of their failure to act for the company.
  
  This fiduciary duty is subject to two levels of legal analysis, depending on the nature of the duty. Directors have two types of relationship with their company: Directors act as trustees when they manage corporate funds.Alternatively, when agreeing and implementing a corporate strategy, directors act as agents of the company. In both instances, a director is required to exercise reasonable commercial judgement in acting on behalf of the company. Whilst a director must take a prudent approach towards their duties as a trustee, they can commit the company to dealings that might involve a commercial risk when acting as an agent. Regardless of which type of duty applies to directors, should the company be liquidated, the liquidator can enforce any breach of fiduciary duty by beginning proceedings against directors under s212 of the Insolvency Act 1986. The main types of fiduciary duty directors owe a company are as follows:
  
  l Directors’ duty to the company’s creditors
  
  The orthodox position, is that directors owe their fiduciary duties to the company though not to the creditors, present or future. [15] However, there is support for treating creditors in the same manner as shareholders, ie for defining the duty to act bona fide in the interests of the company as encompassing creditors’ interests in some circumstances. [16] Directors must be careful not to trade wrongfully under the Insolvency Act 1986, s 214. If a company is trading at a loss, the directors could be failing to minimize the loss to creditors. Failure to act or failing to attend a board meeting in such circumstances could make the director liable. Where a company is insolvent, creditors will take priority over the shareholders.
  
  An example from the law reports is the case of West Mercia Safetywear Ltd v Dodd [1988] BCLC 250. Dodd was a director of two companies, a holding company and a subsidiary. The subsidiary company owed the holding company £30,000. Dodd authorised the subsidiary to make a payment of £4,000 to the holding company. As a result of this payment being made, the subsidiary company went into liquidation. The liquidator sought to recover the £4,000 from Dodd. It was argued that the payment was a breach of Dodd’s duty to the creditors of the subsidiary company. The subsidiary was insolvent when the payment was made. The judge agreed that Dodd was in breach of his duty and was personally liable to the creditors for the £4,000. One further point can be made. Where there is a creditors’ voluntary winding up, a director is under a duty, by section 99 of the Insolvency Act 1986 to lay a statement of the affairs of the company before the creditors’ meeting and to attend the meeting.
  
  l Directors’ duty to consider the company’s employees
  
  This matters to which the directors of a company are to have regard in the performance of their functions have been expanded by statue to include the interests of the company’s employees in general as well as the interests of its members. [17]Section 309 of the Companies Act 1985 requires directors to consider the employees and the shareholders. This duty is owed to the company and not the employees, the rule in Foss v Harbottle will come into play and enforcement of the duty will be at the discretion of the company. It is important to note that this duty does not enforce directors to act in a way that is of benefit to the employees. The duty is to consider the company’s employees.
  
  l A duty to act honestly and in the best interests of the company
  
  Directors have a duty to act honestly and with the utmost good faith for the benefit of the company as a whole. Directors should not act in a way that is of benefit for some other, parallel purpose. A judge will determine whether directors acted properly by applying a subjective test to the particular circumstances. For instance, if directors agree, on behalf of the company, to enter a contract that will give directors a substantial personal gain, a judge will be required to ask themselves whether directors thought they were acting properly in the circumstances.
  
  However, directors can be deemed to be in breach of directors fiduciary duty if a judge decides directors actions were, objectively, an abuse of the powers allocated to them. To take the example one stage further, if directors were required to obtain the authority of one or more directors before entering the contract, directors may have acted beyond directors remit and could be in breach of directors duty to the company.
  
  l A duty to exercise directors’ powers for a proper purpose
  
  It will be recalled that the directors’ duty to act in what they consider to be best interests of the company is qualified by the proviso that they must not act for any collateral purpose. [18] It may be that directors find themselves with a conflict of interest. If directors are responsible for a conflict and authorise a transaction that causes a conflict, the business directors authorised may be set aside by the company in a general meeting, unless the Articles provide otherwise. This action can take place even if the conflict of interest is beneficial to the company. If directors are in breach of this duty, they will either be liable to compensate the company for the personal benefit directors gained or for the loss sustained by the company as a result of the transaction directors authorised. Another example is where it is decided to issue more shares in a company. If the reason for issuing the shares is to preserve directors’ control over the company or to forestall a take-over bid, directors will not have exercised directors’ powers properly. It must be remembered that the purpose of issuing more shares is to raise capital, not for any other reason.
  
  l Personal interests should not conflict with directors’ duty to the company
  
  First, directors should not profit personally when entering transactions on behalf of the company. Secondly, regardless of the nature of the transaction, it will be bad if it involved a director in a conflict between a personal interest and a duty to the company. The following considerations are relevant in this situation:
  
  A company can only conclude a contract in which a director has a personal interest if there is a specific provision in the Articles or where the company approves the contract in a general meeting. In any event, a director must, by section 317 of the Companies Act 1985 declare the nature of their interest at a board meeting. A director is not permitted to retain a profit made as a result of the opportunities that have occurred because of their position in the company. It is irrelevant that the director, in making a profit for themselves, also made a profit for the company. This duty does not change if a director engineers a situation where they resign to avoid this duty. A profit can only be retained by the director if a resolution is passed to this effect in a general meeting or where the opportunity arose within the context of a personal capacity and not as a director. [19]
  
  A director needs to make a full disclosure if they intend to sell their property to the company, otherwise the company can set aside the sale. Two further duties not mentioned in depth are: not to fetter directors discretion by, for instance, agreeing with an outsider to vote in a particular way at a board meeting, and to recognise directors have a collective responsibility towards the company’s members, not a duty to individual members.
  
  
  
  b. Common Law Duties of Care and Skill
  
  The common law duties of care and skill represent the courts’ attempts to regulate the entrepreneurial side of he director’s activities. [20]Directors, in performing their duties, are usually required to enter into business arrangements that carry an element of risk. Commercial reality is such that directors have to take a commercial view on some issues to provide for growth. In consequence, it is accepted that the duty of skill and care is less onerous than that of the relationship between trustee and beneficiary. During the past decade or so, the judges have widened the scope of the law as directors have been brought before them. A director is now expected to use reasonable care when carrying out the company’s affairs. The standard of reasonable care is more extensive for the executive director than the non-executive director. However, should a non-executive director be trusted in matters directly related to their personal expertise, they will be expected to exhibit a reasonable standard of care that is appropriate to their level of expertise.
  
  One example from the law reports will illustrate this point. In the case of Dorchester Finance Co Ltd v Stebbing and others [1989] BCLC 498, the company had three directors, one of which controlled the affairs of the company on a full time basis. Of the other directors, one was a chartered accountant and the second had a considerable amount of experience in accounting. Both held non-executive appointments. These two directors were in the habit of signing blank cheques drawn on the company bank account. All three were held to be liable for the negligence and misappropriation of the active director, even though the non-executive directors acted in good faith. The judge considered there was a breach of the duty of care in this instance, because the non-executive directors (a) failed to attend board meetings, (b) failed to show an interest in the company’s affairs and (c) relied on the active director and company’s auditors.
  
  To comply with the duty of care, a director must pay assiduous attention to the business affairs of their office. If directors fail to perform the duties expected of them, it may be considered a breach of the duty of care, and even may be considered to indicate dishonesty. In addition, a director can also breach the duty if they fail to obtain specialist help or guidance when it is reasonable to do so in the circumstances. Whether a director has breached the duty of care will be decided after taking into account the degree of skill that can be reasonably expected from a person occupying a similar position. Should a director be in breach, other issues that will be taken into account are the general knowledge, skill and experience that can be reasonably be expected of a person holding the same office. When taking the duty of care into account, the judges will also consider the provisions of the Insolvency Act 1986 and the Company Directors Disqualification Act 1986. [21]
  
  
  
  IV.The debate of Non-Executive Directors
  
  UK company law does not recognize Non-executives as a separate class of director. Though some allowances may be made for differences in knowledge and experience, all directors owe the same legal duties and are equally responsible for decisions taken by the whole board.From the early 1980s onwards there was a growing awareness of the role of Non-executive directors, they play a central role in corporate governance in UK Companies. From the point of view of UK productivity and competitiveness, the progressive strengthening of the role of Non-executive directors is strongly desirable. Here, we will look at the position of non-executive directors from the contributions and weaknesses, which, it affects on the corporate governance.
  
  
  
  A. Contributions
  There have undoubtedly been improvements in the role and effectiveness of non-executive directors over the last decade, as companies’ corporate governance arrangements have increasingly come under scrutiny. Much of this improvement is attributable to the development and subsequent refinement of the Combined Code. This was the culmination of work initiated by Sir Adrian Cadbury’s Committee in 1992, and supplemented by the Greenbury Review in 1995 and the Hampel Review in 1998. As regards the role played by non-executive directors, the Cadbury Committee made the following observations:
  
  “4.4 Whilst it is the board as a whole which is the final authority, executive and non-executive directors are likely to contribute in different way to its work. Non-executive directors have two particularly important contributions to make to the governance process as a consequence of their independence from executive responsibility. Neither is in conflict with the unitary nature of the board.
  
  4.5 The first is in reviewing the performance of the board and of the executive. Non-executive directors should address this aspect of their responsibilities carefully and should ensure that the chairman is aware of their views. If the Chairman is also the chief executive, board members should look to a senior non-executive director, who might be the deputy chairman, as the person to whom they should address any concerns about the combined office of chairman/chief executive and its consequences for the effectiveness of the board. A number of companies have recognized that role and some have done so formally in their Articles.
  
  4.6 The second is in taking the lead where potential conflicts of interest arise. An important aspect of effective corporate governance is the recognition that the specific interests of the executive management and the wider interests of the company may at times diverge, for example over takeovers, boardroom succession or directors’ pay. Independent non-executive directors, whose interests are less directly affected are well-placed to help to resolve such situations.” The Hampel Review, six years later, ovserved:
  
  “3.8 Non-executive directors are normally appointed to the board primarily for their contribution to the development of the company’s strategy. This is clearly right. We have found general acceptance that non-executive directors should have both a strategic and a monitoring function. In addition, and particularly in smaller companies, non-executive directors may contribute valuable expertise not otherwise available to management; or they may act as mentors to relatively inexperienced executives. What matters in every case is that the non-executive directors should be able to work with them in a cohesive team to further the company’s interests.”
  
  Therefore, we can find the non-executive directors have made important contribution on these four aspects: business advice based on experience and knowledge; financial expertise, control and management practice and guardianship. [22]
  
  
  
  B. weaknesses
  In the practice, there are some advocates calling for the abolition of NEDs from the boardroom. The reasons can be found as followings:
  
  l Usually, NEDs know very little about the business of the company on whose boards they sit. It is difficult for NEDs to direct company business without significant knowledge. Even if they spend some time in the company, they still will never know the business as well as the executives. So, if management is not too forthcoming, they will never know the issues, until it is far too later.
  
  l NEDs rely heavily on the company for full and timely information in order to make an informed judgment about the company. The information can be easily edited to hide unpalatable news which may reach the recipient at too late a stage for effective action to be taken. [23] Particularly in the modern business environment, major corporate decisions have to be taken quickly, it may be logistically impossible to communicate adequate data to NEDs so as to canvass their opinions and advice, especially when they are geographically widespread.
  
  l There is no employee or service agreements for NEDs, so that NEDs are largely a “self-perpetuating oligarchy”. Unlike the executives remuneration, i difficult question, which has been here for long time, is how to pay for NEDs. As individuals, NEDs could pursue their own benefit. Therefore, there is an immediate and irreconcilable conflict of interest. As Mr Justice Park in Re Continental Assurance Co of London plc(unreported: 27 April 2002) said: if the non-executive directors were liable to pay millions of pounds to the liquidators in this case, it is hard to imagine any well-advised person ever agreeing to accept appointment as a non-executive director of any company.
  
  l In addition, the issue of independence is always the strongest and weakest link of NEDs. According to the Cadbury Committee, “ non-executive directors should bring an independent judgement to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct.” Independence dictates that, NEDs must at all times act with complete honesty, integrity and candour and use due care, skill and diligence in the course of taking any action affecting the company. In fact, this standard is just a ideal, it is difficult to use in the practice, because it is so strict andheavy responsibility will make people flinch to be a NED.
  
  V. Conclusion
  
  The foregoing description of the duties of directors has implied the development of executive or non-executive directors’ duties. First, their duties of loyalty and good faith are exceptionally strict and their duties of care, skill and diligence exceptionally lax. [24] Second, in either case, the emphasis has shifted from directors being honest and meticulous to being competent, diligent and skillful. [25] Third, directors will be judged on the functions that they undertake and their qualifications will not prejudice them. Lastly, the requirements for directors to perform their duties are more strict, “even the non-executive director cannot take a passive role in the organisation” and they must “actively seek to understand the financial affairs of the company”. [26]
  
  As a central part of corporate governance, the role and function of directors are taken in an important position. UK government has been undertaken a wild range of analysis. In particular the scope and content of the duties of directors is under examination. [27] At present, the law related to the duties of care, skill and diligence of both executive and non-executive directors is characterized by uncertainty and confusion. As a result, legislative development is necessary.
  
  Changes may be in the wings. The Law Commission has recently published a report “Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties” (1999) Law Com261. The Commission has recommended a statutory statement of the principal duties of directors, bringing practice in line with other countries, such as Australia. The aim is for the government to take the recommendations of this report into account when the present review of company law is finished in 2001. The report suggests that directors' duties are set out in a legally enforceable statute that would lay directors open to civil and criminal proceedings and disqualification for any breaches. The broad principles cover loyalty to the company, exercising your judgment, insider trading, dealing with conflicts of interest and protecting the interests of employees. The aim is to set a high standard of behaviour, although judges have, more recently, taken the view that higher standards must apply in cases brought before them. [28]]
  
  Although wide consultation on the details is continuing, the Review has generally accepted the idea and set out a Trial Draft. It is observed that these developments will alter the nature of directors. Judge made rules will go. Duties will be formulated in statute law and more readily available to directors. It may well help to bring to the notice of directors what is expected of them by the law, in general terms.
  

【注释】
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[1] Patricia Hewitt, in her speech to the Cambridge Faculty to Law on July 5, 2002.

[2] Geoffrey Morse, Charlesworth & Morse Company Law, fifth Editon, Sweet & Maxwell, 1995, P:343

[3] J.H.Farrar &B.M.Hannigan, Farrar’s Company Law, fourth Edition, Butterworths,1998, P:332

[4] John Parkinson, Reforming Directors’ Duties, University of Bristol

[5] Lord Directorsng, the outgoing President of the Institute of Directors

[6] S.282

[7] Saleem Sheikh, Non-Executive directors: Self-Regulation or Codification, Company Lawyer, 2002

[8] See Table A 1985 art72.

[9] See D.A.V Boyle, The Unitary Board and the one Man Band, 1993, Australian Journal of Corporate Law 3 P:252

[10] Ben Pettet, Company Law, Longman, 2001, P:173

[11] L.C.B. Gower, Gower’s Principles of Modern Company Law, fifth edition, 1992, P:550

[12] ibid

[13] Ben Pettet, Company Law, Longman, 2001, P:173

[14] Stephen Mason, Barrister, Director duties

[15] J.H.Farrar & B.M.Hannigan, Farrar’s Company Law, fourth edition, Butterworths, 1998, P:382

[16] See generally Furey, The Protection of Creditors, Feldman & Meisel, Corporate and Commercial law

[17] Originally CA 1980,s46

[18] J.H.Farrar & B.M.Hannigan, Farrar’s Company Law, fourth edition, Butterworths, 1998, P:387

[19] Stephen Mason, Barrister, Director duties

[20] Ben Pettet, Company Law, Longman, 2001, P:174

[21] Stephen Mason, Barrister, Director duties

[22] Saleem Sheikh, Non-Executive directors: Self-Regulation or Codification, Company Lawyer, 2002

[23] ibid

[24] L.C.B. Gower, Gower’s Principles of Modern Company Law, fifth edition, 1992, P: 539

[25] Mohammed B. Hemraj, the Responsibilities of company directors, Company lawyor,2001

[26] L.Griggs and J.Lowry, Finding the Optimun Balance for the Duty of Care Owed by the Non-executive Director, Company Law, vol2, p221

[27] Ben Pettet, Company Law, Longman, 2001, P:192

[28]] Stephen Mason, Barrister, Director duties

【参考文献】
Bibliography 1. J.E. Parkinson, Corporate Power and Responsibility, Issues In the Theory of Company Law, Oxford, 2002 2. Ben Pettet, Company Law, Pearson Education, 2001 3. Gower, Principles of Modern Company Law, Fifth Edition, Sweet & Maxwell, 1992 4. J.H. Farrar & B.M.Hannigan, Farrar’s Company Law, Fourth Edition, Butterworths, 1998 5. Brlan R. Cheffins, Company Law Theory, Structure and Operation, Claendon press, 1997 6. Geoffrey More, Charlesworth & Morse Company Law, Sweet & Maxwell, 1995 7. July 2002 White Paper
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