A Non-Executive Director has less formal responsibility for the management of a board meeting than a Chairman, but is expected to challenge the board in much the same way.
Why would you need a Non-Executive Director?
- Some directors and business owners need someone to bounce thoughts and ideas off and to challenge their thinking. Some want to bring fresh ideas and perspectives from outside their own business, possibly outside their own profession, into their own business. A Non-Executive Director can provide a stimulus for new ideas for businesses who feel a little stale.
- A Non-Executive might be appointed as a condition of a business sale or investment in debt or a minority equity stake. An experienced Non-Executive Director will give a lot of credibility to anyone looking to invest and as a result may be appointed by the business well in advance of this.
- New businesses often have the technical knowledge to run a professional services firm but not the business experience required for the running and management of a company. A Non-Executive Director with this experience can provide the stewardship required to navigate some of the issues which may be new to a first-time business owner. Equally a regulated business may be owned by experienced business people but without much experienced of operating in a regulated environment, and a Non-Executive Director with a bias towards investment management or regulation may be required, for example.
What would a Non-Executive Director get involved in?
- Attendance at board meetings, review and comment on minutes, board pack management information and papers.
- Challenge and input on all board decisions.
- Comment on areas of weakness or gaps within the existing board.
- Satisfy themselves that the relevant controls are in place to ensure the management information they see is accurate.
- Sit on committees where necessary. Typically, this will be a remuneration committee and/or an audit committee.
You can also expect
- To be informed about any potential conflicts with other positions.
- For them to keep their knowledge and skills up to date.
- For them to understand their legal and regulatory responsibilities as a director, and you may need to offer training on this if they are FCA authorised.
- To undertake thorough diligence and references on them as you would any senior member of staff.
What not to expect from a Non-Executive Director
- Making decisions – unless you’ve given them an executive role, a Non-Executive Director should guide and advise but the board is still the decision maker. That said, it is a board role which comes with some personal liability so a Chairman may resign or whistle-blow if malpractice is observed, and some issues may require Non-Executive Director approval such as director pay increases.
- Socialising – a Chairman is there for support, guidance and confidential discussions, but it is a purely business relationship. Straying outside these boundaries can be detrimental to an independent role where challenge is required.
- Consultancy –a Non-Executive should be available for advice on board matters but there is a line where this can cross into consultancy, which should be billed separately. You should agree in advance where that line is drawn.
£30, 000 per annum.