Tiny Rowland saw them as just Christmas tree decorations: can they ever be more?

What are non-executive directors for? Following the Enron affair, the decline and fall of Marconi and the sorry saga of Equitable Life, it is not an easy question to answer. Non-executives were supposed to be the guardians of shareholders' interests. They were supposed to be wise old heads who would counsel against the wilder actions of entrepreneurial managements. They were supposed to be independent.

But the events of the last few months have shown the current corporate governance structure to be a serial failure and several high profile names have been dragged through the mud. Last week saw Sir Roger Hurn resign as chairman of Prudential following his disastrous stewardship of Marconi, the imploding telecoms equipment maker, where he was chairman. Separately, Equitable Life announced it was starting a £3m legal action against 15 former directors over the decision to introduce differential terminal bonuses. The week before that saw the resignation of Lord Wakeham as head of the Press Complaints Commission as a result of his £80,000 a year non-executive directorship of Enron, the collapsed energy trading group.

Then Lord Young of Graffham, the former Tory minister and outgoing president of the Institute of Directors, waded into the debate, calling for non-execs to be scrapped altogether. It all adds up to a major headache for Derek Higgs, the City banker brought in by the government to advise it on how to improve the effectiveness of non-executives.

Mr Higgs is due to report by the end of the year. But what on earth should he do to a corporate governance structure already weighed down by a series of codes such as Cadbury, Greenbury, Hampel, Myners and more?

One thing he shouldn't do, City institutions say, is pay too much attention to Lord Young's headline-grabbing rant of last week when he said non-executives should be abolished.

Peter Montagnon, head of investment affairs at the Association of British Insurers, says: "We don't agree with that because we believe it is important to have some checks and balances in place to ensure decision-making is robust, that there is sufficient accountability and that the power in the company is not too centred on one person."

Anita Skipper, head of corporate governance at Morley Fund Management, agrees: "We have to stick with them because we have nothing else. How else will shareholders know what is going on?"

Lord Young's other Big Idea – to make non-executive directors full time – also gets short shrift. The central criticism of this suggestion is that it would create a separate power-base within the organisation. At worst, this could lead to empire-building and feuds. At best, it would make businesses more bureaucratic, slowing down decision making and hampering innovation. The full-time non-executives would constitute a German-style supervisory board in everything but name.

The other problem with full-time non-execs is what sort of calibre person would such roles attract. It would rule out every executive director in the country and anyone else who already had a full-time job. It would leave companies fishing in a pool of retired businessmen and part-time workers.

So what changes should be made? There aren't many clues abroad. The German two-tier board approach is seen as too unwieldy and the US structure, where the chairman and chief executive are often the only executives and the dozen or so non-executives are merely the chairman's country-club buddies, hardly inspires confidence.

The ABI has two proposals. First, it believes non-executive pay should be increased in line with the increased responsibilities of the job. Second, it wants individuals to be discouraged from holding "too many" non-executive roles, though it declines to name an optimum figure. The ABI believes these changes would "broaden the pool" of directors that the ranks of non-executives are drawn from and help end the "I'll sit on your board if you sit on mine" approach of many boardroom arrangements.

The National Association of Pension Funds has similar ideas. It believes a career non-executive should have no more than five roles, enabling them to spend a day a week on each. A director with a full-time executive role should take on no more than one non-executive post, it says. "You don't need to have the same kind of detailed knowledge as an executive director," says Alan Rubenstein, chairman of the NAPF's investment council. But they should make a contribution to strategy, bring new skills to the board and have a corporate governance role to play (in audit, remuneration or nomination committees).

On the subject of pay, the NAPF believes this should reflect the increased workload and smaller number of roles being taken on. "If you're asking people to take fewer jobs and spend more time getting out and about in the company and speaking to people at all levels, not just the board, then that should be reflected in the pay," Mr Rubenstein says. The NAPF believes the current average pay should therefore double from its current £25,000-£30,000 a year.

The NAPF also believes companies should apply the same rigorous selection criteria to the appointment of non-executives as they do with executives. A new non-executive is often recommended by the chairman, who makes a representation to the board. Other companies go further, appointing headhunters and going through the nomination committee and formal interviews.

Of course, it is possible nobody will want to become a non-executive director at all any more after the opprobrium heaped on so many of the breed of late. And Equitable Life's legal action against its former directors might make many non-execs believe the rewards do not justify the risks.

The ABI says: "There is an issue in the US that it [being a non-executive] might not be attractive and we would have to be careful that didn't happen here. You'd need a certain amount of liability insurance to protect people."

However, the directors are unlikely to want to pay these premiums themselves given their likely cost. This would result in the farcical situation where boards would be using shareholders' money to pay liability insurance for directors just in case the company decided to sue them later on.

Other suggestions for reform include a dramatic widening of the non-executive ranks to include academics, union leaders, teachers and other professionals. This would certainly offer a different perspective, though critics question whether sufficient detailed knowledge would be brought to bear.

Another longshot is to introduce a professional qualification for non-executives.

According to Morley Fund Management, it is important corporate governance in Britain is not made more complicated than it already is. Ms Skipper says the problems have been mostly with company processes rather than the individuals and that companies should do more to ensure that non-executives receive adequate information on which to base their views. "Further changes should be about simplifying the structure rather than laying another code on top."

Over to you, Mr Higgs.

NON-EXECUTIVE DECISIONS WHAT CAN BE DONE TO EASE THE BOARDROOM CRISIS

*SCRAP THEM ALTOGETHER

A ridiculous idea designed merely to grab a headline. Would strip boards of an independent voice that acts as a vital check and balance on their more wayward notions.

Rating (out of five): 0

*MAKE THEM FULL TIME

Almost as stupid. Would turn non-execs into a quasi-supervisory board that would interfere too much. What sort of penpusher would apply for such a role anyway?

Rating: 1

*LIMIT NUMBER OF NON-EXEC ROLES

Sensible. This would prevent serial non-executives from taking on more jobs than they can handle. They could then spend more time on the jobs that they do take on.

Rating: 5

*GIVE THEM A PAY RISE

Would compensate for the reduction in number of roles and might push non-execs to spend more time at each company they serve. But it might attract people who were in it only for the money.

Rating: 3

*WIDEN THE POOL OF CANDIDATES

Including union leaders, academics and other professionals would certainly add more diverse views. But what chief exec is going to want a union leader around the board table?

Rating: 2

*INTRODUCE EXAMINATIONS

A duff idea. No self-respecting business person would sit an examination for a Diploma of Non-Executive Directorship.

Rating: 0