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The Issue Of Independence And Potential Issues (Coursework Sample)


Question 3.
Consider the following statement from the 2017 Interim results:
‘The UK Corporate Governance Code recommends that at least half the members of the Board of Directors, excluding the Chairman, should comprise Non-executive Directors determined by the Board to be independent. For the purposes of assessing compliance with the UK Corporate Governance Code, the Board considers that Gwyn Burr, Roisin Donnelly, Andrew Griffith and Diego Oliva are Non-executive Directors who are independent management and free from any business or other relationship that could materially interfere, with the exercise of their independent judgement.
The Board also considers that the Chairman of the Company was independent at the time of his appointment. As the Board consists of the Chairman, four independent Non-executive Directors, two Executive Directors and one Non-executive Director who is not regarded as independent for the purposes of the UK Corporate Governance Code by virtue of their connection with certain Major Selling Shareholders, the Company does is in full compliance with this provision of the UK Corporate Governance Code'.
Between March 2017 and September 2017 Just Eat PLC had a combined CEO/Chairman Peter Plumb, the new CEO has now been appointed and David Buttress for former CEO is a non -executive director. Peter Plumb was recruited from Money Supermarket.
In the light of investor concern at Just Eat over CEO Peter Plumb lack of experience in the sector, and the move of a former CEO to become a NED, advise the interim Chairman on issues of independence and potential issues that may arise.


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The Issue of Independence and Potential Issues
Independence refers to quality possessed by people as an important professionalism component and a professional behavior (Campbell, 2011, p.1). Independence also means avoiding being unduly, an element that influenced by an interest that is vested and being free from all constraints that may prevent a right undertaking from being adopted (Nordberg, 2011). This ability helps individuals to stay away from badly chosen influences, to remain free from managerial capture, and to make the correct and untainted decision on every issue. Such makes the idea of independence a critical concept. This concept is listed as a key underpinning of corporate governance. Specifically, internal and external auditors need to possess this crucial quality as an ethical aspect.
Corporate Governance
In the corporate world of governance, independence is important in several contexts. For instance, this concept is essential because it is vital for external auditors to be independent of their clients. It is also vital that internal auditors act independently of the firms which hire them (Bloomfield, 2013). For example, if a client hires an auditor who is a longstanding friend, the auditor is more likely to insufficiently independent when auditing. The auditor is morally expected to represent his or her shareholders by acting on their behalf and their interests and not his or her client. It means that a friendship with his or her client could compromise the ability of the auditor to effectively his or her job. The auditor could be careless or give his or her client a benefit of a doubt which is not right.
More importantly, it is important that the non-executive directors (NEDs) have a level of independence, especially from their colleagues (executive) on a board. To emphasize this point, NEDs are known as independent directors in some countries. Shareholders appoint to represent their interests on the boards of their companies (Roberts, McNulty & Stiles, 2005). It is clear that the NEDs' primary fiduciary duty is to the shareholders. Therefore, NEDs must not let themselves to be unduly influenced or captured by the clouding interests that come from other company members such as the executive directors, middle management, or trade unions (Muravyev, Talavera & Weir, 2016).
Issues: The Level of Independence
Most of the organizations face a common problem which is ensuring independence (at a level) where its absence could present significant ethical threat. Under normal circumstances, networks and friendships build up with time years from relationships at numerous different intensity levels (Solomon, 2013). For instance, audit appointment partners can end up knowing clients well enough over countless years of engagement such as serving together on company boards can strengthen friendships bonds between executive board members and the NEDs.
The degrees of independence vary from one company to another and Just Eat is not an exception. Using continua, we can identify and describe independence as a variable. This theoretical construct can describe the two extremes of independence as well as a range of potential states between them. This can include two extreme points: "Total independence" and "zero independence" extremes (Campbell, 2011, p.2). At the point of total independence, there is no connection between the parties in this relationship. They may also fail to know one another's identity which means they are highly likely to act in a total composed of independence. The other extreme indic...

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