Non-executive directors (NEDs) play an important role as board members in the corporate governance of modern companies. 

NEDs stand back from the day-to-day running of the business, drawing alongside the executive team as required to facilitate the strategic decision-making process. Exactly what this entails will vary from company to company, depending on what is required at each stage of a company’s development.

In practice, NEDs are fundamentally ‘outsiders’ to a company, detached from day-to-day operations and valued for their objective insight and advice, and the experience that they can bring from other companies or sectors. This creates a very different dynamic within their role to that of an executive director and means they can offer a unique perspective towards corporate governance, strategy, risk management and succession planning, amongst other areas. A company must ensure that its NEDs complement the balance of skills, experience and perspectives of the board.

How NEDs operate in practice, and their role, will differ from business to business:

• In a new business, an NED might act as an entrepreneurial mentor whose regular presence in the office provides inspirational leadership and an experienced voice guiding the company as it grows.
• In an established business, such as a listed PLC, an NED attends board meetings and offers unique insights and constructive challenge from their own perspective and experience of other companies.

In all listed company boards, the directors should follow the UK Code’s Leadership Principles.

In the UK, the Companies Act 2006 defines a director as including any person occupying the position of director, whatever the title used, so there’s no legal distinction between executive directors (senior management) and non-executive directors. The legal duties, responsibilities and potential liabilities are the same for both; the distinction lies in the role that they perform.

The difference in reality is that the non-executive role involves a certain number of meetings per year and is more advisory, while the executive directors run the company from day to day.

A director is an officer of a company and not an employee. However, it’s possible that a director (NED or other director) might work under a contract of service making them an employee. It is important to evaluate how the relationship is going to operate to determine whether the individual will be an employee and hence whether employment rights are applicable.

Since the role of an NED varies from company to company, so do remuneration levels. Some organisations in the public and voluntary sectors do not pay a remittance, though travel and some subsistence allowances are usually covered.

All listed UK companies must have an approved remuneration policy in place with which all remuneration or termination payments to directors must be consistent.

As well as providing additional skills, expertise and perspective, the appointment of non-executive directors is an effective means of balancing interests in the board room. NEDs bring a level of independence to discussions. The UK Corporate Governance Code recommends that the listed public limited companies within the FTSE 350 should have at least half the board, excluding the chair, as NEDs; companies outside the FTSE 350 should have at least two NEDs. This allows executive directors to sit on the board from the senior management team, for example, including the Chief People Officer. 

The Code further recommends that the chair of the board should meet the NEDs separately from the other directors on a regular basis, and that they should also meet on an annual basis, without the chair, to review and appraise the chair’s performance. The nomination committees responsible for evaluating, vetting and recommending the appointment of candidates for directorship, should also comprise a majority of NEDs.

The Code also recommends that board appointment and succession plans should promote diversity of gender, social and ethnic backgrounds, and cognitive and personal strengths. Many boards are also increasingly aware of the value of diversity of all forms, including age and disability. For more information, see Diversity on Boards (link).

Due diligence

The principal purpose of due diligence from the company perspective is to obtain as much information as possible about the candidates to enable the board to make a decision on appointment. People professionals are generally expert in recruitment best practice. 

Induction

The UK Code states that it’s the responsibility of the company secretary to facilitate directors’ inductions and assist with their ongoing professional development. This follows the recommendation that all directors should receive an induction on joining a company and that all directors should regularly update and refresh their skills and knowledge.

People professionals have experience in designing onboarding processes and in skills development which can be adapted for board members. 
Induction guidance might include:

• Build upon market-specific skills.
• Contextualise the company’s approach to risk.
• Impart the latest financial information.
• Meet with the main shareholders and other key stakeholders.
• Examine the rules by which the board governs itself and matters reserved for its decision.
• Set out matters delegated to board committees and the terms of reference under which such committees operate.
• Review the company’s corporate governance, policies and insurance.
• Scrutinise the company’s business plan and performance against key indicators contained within the plan.

However, the focus has traditionally been on the financial aspects of corporate governance and so people professionals should consider what skills might be required on the people aspects of corporate governance, and what induction and training might be needed there. 

Training 

People professionals have experience in learning and development which could be applied to the board as individuals and as a team. 

Non-executive directorships can offer individuals opportunity for broadening their insight and experience, and is usually a paid role. 

A company must ensure it recruits NEDs that complement the balance of skills, experience and perspectives of the existing board. An NED doesn’t necessarily have to know the industry in which a company is operating. Rather, the value of an NED lies in their ability to identify and advise upon new challenges, initiatives and market opportunities, and to develop and refocus strategic plans.

People professionals have skills and core competencies relevant to board-level work, and have much to offer. Previous changes to the corporate governance code in the UK have formalised the board’s role in pay setting for the workforce, monitoring corporate culture, reviewing diversity and succession planning for the executives and workforce, and engaging with the workforce. These are all areas that people professionals will have highly relevant, unique experience. People professionals can ensure that an organisation’s key driver of value – its people – is taken seriously at board level.

The duties of directors have evolved over the years as the courts have interpreted legislation regulating UK companies. A comparison can be drawn between the role of directors and trustees since directors are entrusted with protecting a company’s assets, albeit for the benefit of the company. Consequently, directors must demonstrate due skill, care and good faith in exercising fiduciary responsibility.

The Companies Act 2006 places statutory duties on executive and non-executive directors alike to:

• Act within powers set out in the company’s memorandum of association.
• Promote success of the company.
• Exercise independent judgement.
• Exercise reasonable care, skill and diligence.
• Avoid conflicts of interest.
• Not accept benefits from third parties.
• Declare interests in proposed transactions or arrangements.
• Publish annual report and accounts, including reporting on the workforce. 

The rules governing the content of the annual report and accounts are mostly governed by financial reporting standards (IFRS or International Financial Reporting Standards for larger companies, which have been adopted into UK law, or UK GAAP for smaller companies). 

Listed companies whose shares are traded on the stock exchange will be subject to additional directors’ duties; the exact rules may vary depending on the size of the company and market segment. There are other reporting requirements such as gender pay gap reporting. See separate article on Reporting. 

As with executive directors, non-executive directors are liable to disqualification for misconduct under the Company Directors Disqualification Act 1986. If a company’s board of directors is investigated for ‘wrong doing’, such an investigation will include the actions or omissions of NEDs. In general, a director can be disqualified for general misconduct in connection with companies or for being unfit to act as company director.

Directors may also be subject to liability under sector specific rules and requirements e.g. FCA rules for the financial sector, as well as broader business requirements applicable to all companies under competition laws, anti-bribery and corruption laws, insolvency laws, criminal laws, etc. 

It is strongly recommended that all directors and company officers should take out liability insurance and do due diligence on the company before accepting any offer. 

Contacts

The task of finding candidates for private sector non-executive roles is often given to search firms and roles may be advertised in the national press. However, most people find roles via their networks.

The following organisations offer information and services:

FT Board Director Programme

The Chartered Governance Institute UK & Ireland

Institute of Directors

Non-Executive Directors’ Association (NEDA)

Non Executive Directorship Exchange

Women on Boards (open to men also)

EcoDa and its national members in the different Member States (see their list of members) 

The Chartered Governance Institute UK & Ireland

For those interested in joining the boards of listed companies, it may be useful to consider information and services provided by investor representatives: 

International Corporate Governance Network 

UK Sustainable Investment Forum 

EuroSIF 

CFA Institute UK 

UK Government and other official sources: 

GOV.UK - Being a company director 

GOV.UK - Company director disqualification

Financial Conduct Authority - Directory of certified and assessed persons (For

regulated firms in the financial sector) 

European Commission - Company law and corporate governance

ECGI - List of global corporate governance codes by country 

The following organisations advertise board roles:

Dynamic Boards

Reach Volunteering

UK Public Appointments

Women on Boards (open to men also)  

Books and reports

CADBURY, A. (2002) Corporate Governance and Chairmanship - A Personal View. Oxford University Press 

COYLE, B. (2019) The non-executive directors’ handbook. 5th ed. London: ICSA Publishing.

FINANCIAL REPORTING COUNCIL (2018). Guidance on Board Effectiveness. London: Financial Reporting Council.

FINANCIAL REPORTING COUNCIL (2018). The UK Corporate Governance Code. London: Financial Reporting Council.

GILLEN, S. (2022) Building Better Boards. London: Bloomsbury Business. 

VALEUR, C. and FARGEOT, C. (2022). Effective Directors: the right questions to ask, London: Routledge. 

Journal articles

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.