A non-executive director is a member of a company's board of directors who is not involved in the day-to-day management of the organisation, but is typically involved in planning, strategy and policy making in relation to the company and its objectives. The appointment and conduct of all company directors, including non-executive directors, is regulated by the Companies Act 2006.
This guide looks at the duties involved in the role, the legal responsibilities, the time commitment expected of non-executive directors, and how much they should be paid. It also considers how a business can go about finding and hiring a non-executive director.
How can non-executive directors help small firms?
A non-executive director can bring many benefits to a small business. These can include providing mentoring for the management team, access to a particular network of contacts, plus the benefit of their personal expertise, which may complement that of the executive team.
Non-executive directors have the advantage of being less involved in a company's everyday operational activities than the executive directors.
They have a broader perspective and may be capable of comparing a business with others in its sector. This can lead to a more realistic view of a company's prospects as it ventures into new markets, deals with new suppliers and faces up to legislative changes.
Many smaller companies value non-executive directors for their financial expertise. Clearly this depends on the choice of individual, but a non-executive director with the right qualifications and experience can help a company as its directors face challenges of which they have little knowledge, such as raising finance or dealing with debt.
A non-executive director can also help a business to increase its customer base or find partners and suppliers by exploiting their network of contacts. The need to demonstrate good corporate governance is important for small firms seeking loans or venture capital.
Appointing a non-executive director indicates that a company's board is well run, and may help to reassure investors
The role and responsibilities of the non-executive director
Many companies recruit non-executive directors to bring in specific expertise. Certain rules apply regardless of the size of company. Under the Companies Act 2006, a non-executive director has the same legal responsibilities as the executive directors. This means they must:
- Help lead the company within a framework of prudent and effective controls.
- Assess and manage risk.
- Provide an input into company strategy and ensure that the company has the resources to carry it out.
- Help set the company's values and standards.
In practice, this means bringing certain qualities to the company's decision-making. For example, non-executive directors should be sufficiently independent to provide objective criticism and contribute to the development of your strategy.
If you are thinking of appointing a non-executive director, download our full guide below.