UK - Non-executive directors need to take a more dynamic role in corporate governance, Legal & General Investment Management (LGIM) claims.
LGIM said changes in working methods are necessary if corporate governance standards are to be met, and non-executive directors in particular are advised to challenge management decisions and exert stronger leadership.
Andy Banks, head of corporate governance at LGIM said: "The financial crisis exposed material shortcomings in the incentive, risk management and internal control systems of many companies. Cultural issues also surfaced, with excessive short-term risk taking being promoted over long-term value creation.
"When a Board assumed it did not need to challenge the executive, nor understand business models or higher risk activities and products, it failed."
LGIM said there are five areas of particular concern: collective engagement where investors can communicate realistic standards; board evaluation and succession planning; regulation and remuneration; and the role of the non-executive.
Banks also said corporate governance was the most likely way to build shareholder value over the long term.
"While there is no ‘one size fits all' approach, experienced corporate governance teams can help companies they engage with to both manage risks and ultimately improve their bottom line," he added.
LGIM complies with the UK Stewardship Code and has also signed up to the UN Principles for Responsible Investment.
US investment provider MSCI signed up to UNPRI last week. (Global Pensions: October 07, 2010).
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