Businesses benefit in a multitude of ways by having the right non-executive directors alongside their executive directors. They are often the intangible way of creating a springboard for growth, developing new connections and improving business reputation. But what is a non-executive director and how can you bring these individuals on board in a way which ensures your business really benefits?
Every private limited company must have directors. In reality, in a very small company, this may just be the individual owner. A public limited company must have at least two directors. However, in most successful companies, there is a board of directors with a number of different individuals taking on key directorship responsibilities.
The board of directors is vital for company governance, as well as setting and enabling the strategic direction of the business. As such, the best boards are all about balance with complimenting skills between different individuals. The idea is to pool expert knowledge and skills so that the sum of the whole is greater than the sum of the parts. In practice, this means you have individuals representing core responsibilities, from technology to finance.
However, even with salaried directors covering the typical C-suite roles, from Chief Financial Officer to Chief Technology Officer, there are still further opportunities for the board. This is where the non-executive director comes in. The actually recommends that, certainly with larger publicly listed companies, at least half of the board is made up of non-executive directors.
A non-executive director is independent of the company but legally a member of the board. They have the same responsibilities, obligations and liabilities as executive directors but fundamentally, they don’t get involved in the everyday running of the business. Rather than getting involved in the nitty-gritty of daily business life, they offer oversight and direction. They can help shape strategy and be a ‘critical friend’ when it comes to monitoring performance of executive teams. Their standing can add weight to outsiders, shareholders and reputation-building. Their network becomes the business’s network too.
Non-executive directors further diversify the board in terms of skills and potential. They can offer guidance rooted in experience and proven expertise. As such, they should – if selected wisely – add immense value to the company, even though they are not involved in its day to day running.
Non-executive director roles are not full-time salaried positions. Instead, enough time needs to be devoted to carry out their responsibilities. As such, this can vary enormously, dependent on what the non-executive director has been recruited to do. Most non-executive directors commit at least a few days a month to the position. They aren’t paid a salary, but they are typically paid a director’s fee (although some roles are voluntary, particularly for charities). This may vary if they sit on different committees. Non-executive directors are not employees (and don’t receive other benefits as such, e.g. pension). The pay is taxed, and this can be done as usual through PAYE or the individual may declare the payment on a Self-Assessment Tax Return.
So, now you know what an executive director is, what are the benefits to the business?
Many benefits of non-executive directors are quite difficult to quantify in real-terms. However, that doesn’t mean the benefits should be overlooked. Indeed, you only need to look at average non-executive director earnings, which are , to see the value of the role to businesses. The main five benefits are:
Learn more about . It’s important to consider when you would benefit from hiring different non-executive directors. Different individuals can be beneficial at different times in the business journey, from start-up formation through to challenging times or operational opportunities.
A board benefits from choosing the right support to recruit their non-executive directors. At Eagle Headhunters, our benefit from our ability to pinpoint valuable and available candidates that will bring your business the above benefits of a non-executive director. Our experience and insight has delivered non-executive directors to a plethora of UK and international businesses who have gone on to achieve greater success in the business.