The role of the non-exec director (NED) is one of the more misunderstood in business. For companies setting up a board for the first time, it can especially tricky to find, engage and manage non-executive directors to get the best out of them. But you can make the process a little easier by asking yourself a few basic questions, the answers to which can provide a road map.
What does a non-exec do?
This is a good place to start: the definition of a non-executive directors’ responsibilities include the monitoring of the executive directors, and to act in the interest of any stakeholders. In essence, that means questioning, challenging, and advising the executive team and supporting their decision-making process.
Typically a NED will either take the role of chairman or act as a non-exec counterpart to the executive team. In some cases the company may appoint a senior independent director (SID) to act as a conduit between shareholders and management, though that tends to be more common in larger companies.
Non-execs may also be able to bring industry or business connections, offer advice on governance, as well as providing a sounding board for directors away from the boardroom.
What does a non-executive director not do?
Principally, non-execs don’t decide the direction of the business or pursue an agenda. They don’t, as a rule, suggest a strategy or get involved in the day to day running of the business.
The worst thing a non-exec director can do is interfere with the executive management team. They should constructively criticise but not actually, they’re not there to run the business, ever.
Instead the role centres more on coaching, encouraging, engaging, suggesting solutions to the management team.
When should you consider appointing a non-executive director to your board?
That depends largely on where the company is in its business cycle. Typically, a start-up would require NEDs and Execs with more hands-on experience in operations and financial management as well as mentoring. However, a more mature business might need the board composition to include members with governance skills, strategic or international experience.
For more advice on non-executive directors, please get in touch.