FAQ - The Role of the Non-Executive Director
What is the role of a non-executive director?
The non-executive director’s role can be seen as a counter-balance to that of the executive director, so as to ensure the board as a whole functions effectively. Executive directors have intimate knowledge of the company whereas non-executive directors are generally expected to have a wider perspective. Of greatest importance is their independence from the management of the company.
Non-executive directors should take responsibility for monitoring and challenging the performance of management, especially with regard to progress made towards meeting the company’s strategic objectives.
An effective non-executive director can see issues in their totality and bring a fresh, diverse and external perspective to board discussions and decision-making”
What type of experience should a non-executive director possess to contribute at board level?
There are no specific criteria for the level of experience required, it is very much on a case by case basis and dependent upon the needs of the company. It is advisable that every board should develop a skills matrix and use it to identify any gaps on the board. Non-executive directors are generally chosen because they have a breadth of experience, specific skills and can bring specialist knowledge to the board
What are the essential benefits that a non-executive director brings to this type of role?
An effective non-executive director will provide a creative and informed contribution to the strategic direction of a company and act as a constructive critic while also helping to ‘connect’ the business and the board with networks of contacts and potential investors or others who can assist the company in achieving its goals.
Which industry experience is most in demand for these positions?
It very much depends on the company, its size and structure and the sector in which it operates. Companies should consider what key skills are already available among the executive and around the boardroom table and what areas are lacking. Requirements can vary from those non-executive directors with a financial, risk or accountancy background through to those who bring marketing, sales or HR experience. Expertise in the areas of Fintech and IT is also increasingly sought after.
What time commitment do non-executive directors devote to their role and over what period?
The onus is on each director to ensure that they have sufficient time to commit to their non-executive position. In certain regulated sectors there are limits to the number of directorships that a director can hold so as to avoid conflict of interest and to enable the director to devote the time required to effectively carry out their duties.
Being a non-executive director is about much more than attending board meetings, sufficient time must be allocated to reviewing board papers as well as getting to know the organisation – its employees, major customers, suppliers and shareholders. Many non-executive directors also sit on board committees which adds to the time and level of commitment required.
The term of appointment for a non-executive director should be fixed, albeit subject to renewal for another term. Generally, in order to maintain independence, it is recommended that a non-executive director should serve for a minimum period of three years.
What is the typical cost for employing a non-executive director?
Fees for non-executive directorships vary greatly and depend on a range of factors such as the time commitment, the sector in which the company operates, its size, the level of complexity and so on.
For SME businesses, fees can typically range from €15,000 to €25,000 but there is no one size to fit all.
What are the characteristics of a successful non-executive director?
An effective non-executive director can see issues in their totality and bring a fresh, diverse and external perspective to board discussions and decision-making. They should constructively challenge management as well as strengthening a board by offering independent counsel and advice.
The role demands a high degree of integrity as well an ability to negotiate and collaborate.
As a business develops there is a need to distinguish the role of management from that of the board. This can be difficult in situations where the principal management comprises the owner/s of the business with perhaps some key staff who have certain operational responsibilities. There may be an insufficient number of directors to have an effective board carrying out the various commercial and legal responsibilities that are the preserve of the board.
Having one or more experienced non-executive directors is one way of beginning the process of bringing objectivity, accountability and governance to a company. There should be a separation of what goes on at management meetings and what goes on at board meetings. They are not the same. The drive for such change will often come from those who are not close to the company but who have been brought on to the board because of their experience of best practice in other companies and sectors.
All directors should bring their personal values to bear on setting the company’s vision and mission, policies, standards and ethics – they should help chart the company’s strategic direction, vision and mission. Non-executive directors must, however, refrain from interfering with management in implementing strategies to achieve these objectives. That said, they must hold management accountable for performance – not just financial performance but also for performance on achieving the strategic objectives.
The directors should ensure that management identifies and evaluates risk in all areas of the business and develops minimisation strategies appropriate to its business and the market in which it operates and that there is proper and timely management succession.
The ethics and standards for the business are set by the board and it is the board’s responsibility to ensure that the tone it sets at the top filters down to all levels within the company. Directors need to give this high importance and satisfy themselves that corporate policies, set at the top, are being followed.
Would your company benefit from having an experienced professional contributing at board level?
Having one or more experienced non-executive directors is one way of beginning the process of bringing objectivity, accountability and governance to a company.