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

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

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?

What is a Non-Executive Director?

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?

Benefits of a Non-Executive Director

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 £86,937 per year, to see the value of the role to businesses. The main five benefits are:


1Independent Perspective & Thinking
It’s very easy for a board of executive directors to become an echo chamber with limited fresh perspective. Non-executive directors are not employees and they aren’t involved in daily business tasks. Their perspective – at least in theory – is unbiased. They don’t get caught up in the daily politics of an organisation and they shouldn’t be personally motivated by career ambitions. Their distance from the organisation becomes the organisation’s asset. They can often see problems, solutions and opportunities well before executive board members can. When hiring non-executive directors: Ensure you look for independent thinkers with high levels of emotional intelligence, integrity and proven ability to exercise sound judgment.
2Networks & Contact
A successful business is a well-connected business. Opportunities are borne of the best networks. Yet networking takes considerable time and effort, something which many executive directors, busy with the daily running of the business, have minimal time for. Conversely, non-executive directors typically come to the role having lived most of their career, amalgamating powerful networks behind them. As such, the organisation can piggyback on this ready-formed network with direct access to everyone they need, from the right investors to best suppliers and new customers. When hiring non-executive directors: Consider their network and how this aligns with business objectives and future potential.
Experience doesn’t just happen, it takes time, yet it’s invaluable at the board level. Joining a non-executive director’s commercial experience into the mix allows the business to flourish without the need for trial-and-error. It’s why multiple non-executive directors can be particularly effective as with each one, the business and board are amassing decades of relevant experience at their fingertips. When hiring non-executive directors: Look for individuals with a proven track record with ample C-suite experience in your area, but also look for breadth of experience across your non-executive directors so that there is balance.
When asking ‘what is a non-executive director?’ you will typically hear that they are a way of holding the board to account. At the highest level of the business, it’s harder to build true accountability into business life. Salaried directors are, by virtue of their position, biased. The non-executive director takes a helicopter role to provide accountability. They are the critical friend, and they look at things from the perspective of all stakeholders. When hiring non-executive directors: Choose individuals who have tact and discretion, but who are also capable of shouldering the responsibility of high-level leadership and taking a critical approach.
5Expertise Leading to Financial Benefits
Non-executive directors can offer a direct route to secure investors. Investors view the non-executive directors as an asset in themselves. Investors often gain confidence from seeing the non-executive directors contributing their expertise to the business. Importantly, the non-executive director will have business specific expertise, but they will also have finance and fundraising expertise that they can draw on. When hiring non-executive directors: Look carefully at their connections and also background financial business acumen and success.

Learn more about how to hire non-executive directors. 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 clients 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.

    Learn more about what is a non-executive director and how our highly skilled team of headhunters can help.