What is a non-Executive Director?
The Companies Act defines a “Director” as including “any person occupying the position of director, by whatever name called”. As such there is no legal distinction between an executive director and a non-executive director. However, differences can usually be found in the roles they perform. Non-executive directors are generally not involved in the day-to-day running of the company but mainly serve a role in overseeing the chief executive and senior management. They are usually appointed for their expertise, depending on the company’s requirements and to facilitate the strategic decision-making process which may involve questioning the decisions of the executive directors. They also tend to work on a part-time basis (one or two days per month). Therefore, the expectations of non-executive directors will vary from company to company. Executive directors on the other hand are responsible for the day to day running of the company and usually have a hands-on role and work full time in the business. However, the board, which including the non-executive directors, are collectively responsible for the success or failure of the company. Robert Glascott has served as an executive director and is now available to sit on the board in non-executive capacity.
There is no distinction in the Companies Act between the liabilities of a director and a non-executive director.
As such non-executive directors are exposed to similar risks as those of executive directors, namely:
- Disqualification under the Company Directors Act.
- Risk of personal liability for: breach of fiduciary duty; breach of duty to exercise reasonable skill, care and diligence; wrongful trading; countless other statutes and statutory instruments under which non-executive directors can be personally liable.
What is the role of a non-executive director?
Non-executive directors are usually chosen because they have a breadth of experience, specific skills and can bring specialist knowledge to the board. Of greatest importance is their independence from the management of the company and any of its interested parties. Non-executive directors should take responsibility for monitoring the performance of management, especially with regard to progress made towards meeting the company's strategic objectives. They need to be: supportive, intelligent, interesting, well-rounded and mature, funny, entrepreneurial, steady, objective yet passionate, independent, curious, challenging and a high degree of integrity is essential.
Why appoint a non-executive director - what are the benefits?
Non-executive directors offer a wide range of benefits to a company. Because they are not heavily involved in the day-to-day running of the company, they can see issues in their totality and bring a fresh, diverse and external perspective to board discussions and decision making. Non-executive directors can also strengthen a board by offering independent expert counsel and advice to the board as well as providing a bridge to potential investors or stakeholders. They should also facilitate strong dialogue and business discussion.
How long should a non-executive director be expected to serve on a board?
It is generally recommended that non-executive directors should stand for re-election every three years.
In order to maintain independence, a non-executive director should generally not serve on a board for longer than nine years.
How much should a non-executive director be paid?
Fees for non-executive directors vary and depend on a range of factors, including the time commitment expected, the level of involvement with board committees, the size and turnover of the company and the sector in which the company operates. Payment can be fixed fee or fixed retainer plus fees for attendance at specific meetings, fee arrangement will reflect time commitment. Appointment will be set out as a written contract of service.