The Higgs review, published in 2003, recommended that boards of publicly listed companies should appoint a senior independent director (SID) from among their independent non-executives.
To qualify as ‘independent’, non-executives need to have the necessary independence of character and judgement as well as being free of any connections that may lead to a conflict of interest.
Higgs felt that the role of the SID was important in the relationship between major shareholders and the board, saying: “The senior independent director should be available to shareholders, if they have reason for concern that contact through the normal channels of chairman or chief executive has failed to resolve.”
The post caused some controversy when it was first proposed, with claims that it made governance more cumbersome and weakened the role of the chairman. But it made it through to the revised version of the Combined Code brought out in 2003, and today, is included in the Financial Reporting Council (FRC) UK Corporate Governance Code (Jul 2018). As time has moved on, the role has become generally accepted.
SIDs serve as a sounding board for the chairman and act as an intermediary for other directors. They are responsible for holding annual meetings with non-executives, without the chairman present, to appraise the chairman’s performance. They would also be expected to meet with the non-executives on other such occasions as necessary.
When the board is undergoing a period of stress, the SID’s role becomes vitally important. They are expected to work with the chairman, other directors and shareholders to resolve major issues.
For example, they can act as an alternative point of contact for investors who may have made little headway in discussions with the chairman, chief executive or finance director – or who may have concerns about the performance of these individuals. Where the relationship between the chairman and chief executive is particularly close, and they do not communicate fully with shareholders, the SID is able to step in and provide a link.
Where there is a disagreement or dispute between the chairman and the chief executive, the SID can intervene, identifying issues that have caused the rift and trying to mediate and build a consensus.
In summary, the senior independent director’s role would usually involve:
- working closely with the chairman, acting as a sounding board and providing support
- acting as an intermediary for other directors as and when necessary
- being available to shareholders and other non-executives to address any concerns or issues they feel have not been adequately dealt with through the usual channels of communication (ie through the chairman, the chief executive or finance director)
- meeting at least annually with the non-executives to review the chairman’s performance and carrying out succession planning for the chairman’s role
- attending sufficient meetings with major shareholders to obtain a balanced understanding of their issues and concerns
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