As levels of boardroom regulation have increased, more and more businesses are appointing Non Executive Directors (NEDs) to their boards in order to assist the management team with risk management, compliance and governance.
While executive directors help to run a company’s business, NEDs don’t have daily management responsibilities. As a result, they have the time to contribute to the development of the firm’s strategy, monitor the performance of the management team and ensure that appropriate risk management processes are in place.
Whereas executive directors can be too busy with day to day duties, NEDs are there to point out what the management team doesn’t know. They also help to ensure that a small group of individuals can’t dominate the board’s decision-taking.
So where do you find a NED for your board? NEDs tend to be people with extensive managerial experience in areas such as finance, marketing, sales or legal. Many businesses find their NEDs through word of mouth or business contacts. An alternative is to use an executive recruitment agency.
In order to get the most out of having a NED on your board, you should create a clearly defined job description with a strong letter of appointment, setting out exactly what is expected of them. NEDs should operate at more of a strategic level, challenging executives and providing the board with an independent perspective. It’s not just the business that needs to be careful, as NEDs face considerable personal risks in terms of personal liabilities if a business were to fail. They are as accountable as other directors to the regulators and shareholders of the business.
NEDs are not necessarily as important to the success of a business as a chief executive or management team but they can provide expertise, guidance and perspective which can help to pave the way to success for the firm