Non-Executive Directors – Your Questions Answered
What is the difference between an executive and non-executive director?
Under companies legislation, there is no distinction between an executive and a non-executive director. The non-executive director’s role can be seen to balance that of the executive director. Executive directors have an intimate knowledge of the company and generally provide an entrepreneurial spur, whereas the non-executive director is usually expected to have a wider perspective of the business community at large and often has more to say about prudent control.
Who can be a non-executive director?
Non-executive directors should have relevant boardroom experience and possess the specific skills, expertise and experience required by the board that they have been asked to join. An appropriate level of training on the role and responsibilities of a director should also be a consideration when selecting a non-executive director.
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 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 and challenging the performance of management, especially with regard to progress made towards meeting the company’s strategic objectives.
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.
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 and, in order to maintain independence, a non-executive director should generally not serve on a board for longer than nine years. In some instances, non-executive directors may be subject to annual re-election.
How do I go about finding / recruiting a non-executive director for my board?
For businesses considering appointing a non-executive director there are formal and informal channels. One of the best ways to source a non-executive director is to use an independent, expert service, such as the IoD’s Boardroom Centre.
How much should a non-executive director be paid?
Fees for non-executive directors vary greatly 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. The Boardroom Centre provides advice to clients on non-executive remuneration.