''Who steals my purse steals trash...'': reputation as a factor in establishing the value of non-executive directors and members of audit committees Online publication date: Tue, 01-Jul-2003
by Michael Page, Laura F. Spira
International Journal of Management and Decision Making (IJMDM), Vol. 1, No. 1, 2000
Abstract: Independent audit is a key corporate governance mechanism and the involvement of non-executive directors in audit committees has been promoted as a method of improving the accountability of company management to investors. Grout et al. [1] suggested that qualified independence of auditors is a signalling device; auditors will be vulnerable to loss if their acquiescence in marginally acceptable accounting practices is not backed by well-founded belief in the stability of their client. This paper extends this model to non-executive directors (NEDs) and members of audit and remuneration committees of large UK corporations, suggesting that the threat of the loss of reputation plays a similar role in the efficacy of NEDs as a signalling device. This hypothesis is tested by using titles and honours bestowed by the UK Government as a proxy for reputation. NEDs are found to be six times as likely to hold honours as executive directors.
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