Non-executive directors play a unique role on a board of directors. It’s a role that complements the board chair and executive director roles to support good corporate governance. Non-executive directors have the same duties and responsibilities as executive directors. The independent nature of their role brings much needed objectivity to the board, which is something that’s vitally important to shareholders.
Today’s non-executive directors have the benefit of using board portal software to assist their efforts in strategic planning and oversight. Board directors across the world rely on the Diligent board management platform as the most intuitive electronic solution for board material management and collaboration. Diligent software makes it possible for board directors to access their board materials securely at all times. The software facilitates easy agenda building, integrated board meeting minutes and enhanced voting capabilities using any device in real time. The programs are all fully integrated for the most secure board collaborations possible.
Differences Between Executive Directors and Non-Executive Directors
While there are no legal differences between non-executive directors and executive directors and they have all of the same duties and responsibilities, there are a few important differences between them.
Executive directors are full-time employees of the company. Boards of directors delegate substantial control and authority to managers. Their main role is to manage the daily activities of the business. An executive director’s board duties aren’t nearly as time-consuming as their day job, but their position on the board is equally important.
Conversely, non-executive directors aren’t employees of the company and they’re not affiliated with the company in any other way. While non-executive board directors aren’t involved in any aspect of the company’s day-to-day activities, they are responsible for monitoring the work of managers and their operations. Non-executive board directors participate in all board meetings and may also be invited to participate in management meetings at times. What makes the non-executive board director role uniquely different is that they bring an independent and objective perspective to the boardroom, which is so important to the functioning of the board. Independent board directors also add balance and accountability to the board because they’re required to consider the interests of the company as a whole and to do their best to protect the shareholders.
Mutual Responsibilities for Executive and Non-Executive Board Directors
Executive and non-executive board directors share responsibility for upholding the principles of good corporate governance. All board directors are expected to contribute to board discussions, to develop the most profitable strategies and to strive to reach the company’s goals.
In addition, the board is responsible for assessing management’s performance in meeting their goals and monitoring their activities. Non-executive directors play a vital role in this area. Overseeing risk management is yet another area in which executive and non-executive directors share the same responsibilities. Risk management oversight requires board directors to ensure that the company has accurate financial controls and that the company’s risk management strategies are defensible and robust. All board directors are responsible for board director remuneration, board composition, CEO appointments and succession planning.
Best Practices for Non-Executive Directors
Most boards strive to have a majority of non-executive directors that are also independent of substantial shareholders, material suppliers and the company’s customers. Their role makes them guardians of the governance process. As official governance protectors, non-executive directors must understand as much as possible about the company and pursue their duties and responsibilities diligently.
Board director orientation and ongoing training are vital for non-executive directors, as those processes are crucial for gaining a better understanding about the company and the rest of the industry. Despite not being invested in the company’s day-to-day business, non-executive directors need to give their board duties diligence in challenging management and holding them accountable, as well as offering advice and expertise in their specialized areas.
Boards are apt to choose non-executive directors who can easily see the scope of the company’s issues. High-quality non-executive director candidates have broad experience, strong credibility and specialist knowledge in an area of board need. Having the ability to be a team player and having key contacts within the industry are qualities that round out the best non-executive directors.
Non-Executive Board Director Duties and Responsibilities
While non-executive directors share many duties and responsibilities with their peers, non-executive directors play an important role in some of the more sensitive areas of board work. When it comes to delicate matters like handling conflicts of interest, performing remuneration evaluations and other areas where the shareholders and managers don’t see eye to eye, non-executive board directors provide the necessary objectivity to successfully navigate difficult waters with fairness and impartiality. Non-executive directors also play a strategic role in dealing with related party transactions and succession planning.
The duties and responsibilities for non-executive directors surface from several different areas. Independent directors have fiduciary duties and regulatory duties. Additionally, they must be fully aware of duties that correspond to state and federal statutes. Directors who fail in their fiduciary duties or who violate laws and rules breach their board duties. This is cause for dismissal from the board. Not fulfilling board duties can also cause non-executive directors to be accused of negligence, which can lead to personal vulnerabilities and liabilities.
In considering how the board functions as a whole, the board chair and the board directors serve in complementary roles. Executive directors bring managerial insight to board deliberations. Non-executive directors bring objective perspectives and outlooks to their meetings. The board chair facilitates the meetings. When interactions between them are good, the board has appropriate checks and balances in place, and it keeps things steady and democratic.
Non-executive directors bring outside experience and expertise to the boardroom in a way that keeps companies on track and moving forward. Most non-executive directors have helped companies grow or survive tough times. When they can’t help directly, their network of contacts can prove to be valuable. Many company boards fall into non-productive habits and a non-executive director can effectively get them back on track. Overall, the addition of a non-executive director role plays an integral part because of the external perspective that it offers.
Best practices for good governance state that boards should evaluate themselves and their major committees annually. It’s pertinent that independent board directors place a priority on the annual self-assessment to identify areas in which the board can improve as a whole. Diligent’s self-assessment tool is the most appropriate software solution for this purpose. All board directors will also find value in the other products that comprise the suite of solutions called Governance Cloud, including a board portal and a secure communications platform.