A non-executive director (NED) sits on the board but does not hold an executive office. They are not company employees; they primarily serve as independent advisors involved in policy making, executive supervision and representing stakeholder interests.
Difference between non-executive and independent directors
An independent director is a non-executive with no ties to the company other than being on the board. They are free from any relationships or internal conflicts of interest that could compromise their impartiality. They often serve on the compensation and audit committees, to provide an unbiased influence on decision-making.
In contrast, NEDs may be dependent or independent. They are not in the executive team, but they could have some financial and professional ties to the company, such as working for a major supplier to the firm or being an employee representative. Even if the NED does have ties to the company, they also bring an outside perspective and specific expertise to the table.
Responsibilities and duties
The primary duties of a non-executive director include:
- Strategic guidance
NEDs offer valuable insights and external perspectives to shape the company’s strategy. They bring field-specific expertise to guide long-term plans and decision-making.
- Performance monitoring
Supervising and assessing executive management performance and decision-making are important functions of NEDs. They ensure that the company executives work towards achieving business goals and act in the best interest of the shareholders.
- Risk management
A critical role of NEDs is to identify, assess and control risks that could harm the company’s reputation, financial health or operational efficiency. They evaluate and supervise risk management strategies and ensure the accuracy of financial statements.
- Corporate governance
NEDs play a pivotal role in ensuring that all company operations align with legal frameworks, top industry practices and ethical conduct. They oversee corporate governance structures, policies and practices to maintain transparency and accountability.
Qualifications and appointment procedure
A non-executive director is chosen for their integrity, ethical conduct and commitment to continuous learning and upholding stakeholder interests. Even though they are not involved in daily operations, they must be willing to allocate a substantial amount of their time to attend board meetings, serve on board committees and stay updated with the company’s latest developments.
The nomination committee is responsible for nominating a suitable candidate to serve as a non-executive director. The board then deliberates and approves the appointment based on how well the candidate’s values and expertise align with the company’s strategic needs.Depending on the organisation’s byelaws, appointing NEDs might also require shareholder approval. This typically happens during Annual General Meetings or Extraordinary General Meetings.
Want to know more?
Do you have any additional questions about "Non-Executive Directors"?
Speak to one of our consultants, we are here to help.