What is a Non-Executive Director and Why Does Your Business Benefit from Them?

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 UK Corporate Governance Code 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?