If you are looking for a comprehensive look at what it means to be a non-executive director of a company, you came to the right place. Whether you’re on the way to become one and wish to know more about it, or if you’re just curious want to check things out first, we have got you covered. We understand that it can be quite tiring to comb through the internet looking for that perfect guide, which is why we came up with this article where we discuss the job of a non-executive director in layman’s terms. We hope this will help you out. Let’s learn about ‘Job Description For Non-Executive Director’.
Job Description For Non-Executive Director
An NED is an interesting position as it is the only non-executive role in a company, and they are responsible for chairing its Board of Directors. They are brought in to provide an external, independent perspective to the Board, something which someone sitting inside looking out may not be able to contribute. The non-executive director’s duties include assisting with and helping design business strategy and ensure that decisions are taken only after properly weighing the possible risks and gains. The non-executive director is expected to challenge and advise the other directors from their own perspective. While there was debate regarding the importance of the role of an NED in a company Board of Directors about a decade ago, today it is widely accepted that non-executive directors have a significant contribution to the proper functioning of their respective companies and subsequently to the economy at large. Almost every well-established company therefore, looks to hire an NED to bring in independent and unbiased oversight as an asset to run their business. Let’s take a more detailed look at some of the broad responsibilities of a NED and the skills required to be one, along with some other features of the job.
Responsibilities: Job Description For Non-Executive Director
Generally speaking, an NED is supposed to provide counsel to the company Board of Directors. They essentially serve the role of a hired specialist and work mainly in numerous sub-committees, dealing with matters related to budget auditing and finances. Their key responsibilities can be listed as follows:
- Giving strategic direction as an outsider. The NED will have a clearer or wider view of external factors affecting the business of the company, compared to the executive directors. Therefore, they are required to furnish constructive criticism in a creative and informed manner, by looking at the objectives and plans drawn up by the chief executive and the executive team.
- NEDs are supposed to be responsible for monitoring the performance of executive management, especially in terms of progress being made to achieve the set company directives and broader goals. They have a say in the appointment and removal process of executive directors, and in succession planning as well.
- A NED’s duties also include determining the appropriate levels of remuneration of executive employees. Large companies usually have a remuneration committee, which decides this aspect of business. This in turn provides an independent pathway for fixing the remuneration for executive directors. A NED shall have to work with such a committee in case there is a question of deciding executive pay.
- Since an NED has a better connect with the outside world than the other executives, they shall be responsible for helping the business connect with external networks of potentially useful people and organizations. A company stands to benefit greatly from outside contacts and opinions. In some cases, the NED may be expected to represent the company externally.
- An NED will be deeply involved with the financial aspects of a company, and shall therefore have to work to convince themselves of the integrity of the company systems which control its financial information. This includes checking on the processes of risk management to determine if they are robust and feasible enough to meet the company’s requirements.
- It is the primary duty of the entire Board of Directors to ensure that the company presents its accounts properly to its shareholders by presenting a true and fairly transparent reflection of its actions and financial performance trajectory. They also need to convince their shareholders that the essential internal control systems of the company are running smoothly and are under regular monitoring to ensure that they keep doing their work. Naturally, a NED has an important part to play in fulfilling this collective responsibility of the board, irrespective of whether a formal audit committee composed of NEDs has been set up inside the company with this purpose.
Skills and Personality Traits:
NEDs are expected to stay focused on board matters and not stray into executive direction. What that means is that an NED is supposed to provide an independent and detached assessment of company activities and not get too involved with its day to day functioning. The skills required for a job like that can be broadly presented as follows:
- Since the predominant role of an NED is advisory, it probably goes without saying that companies will be looking for someone with a lot of experience and technical knowledge about the company. Someone who has worked in multiple companies of the same sector will be a good fit because they will have a fair idea of what different companies work with. They will be able to provide different creative solutions to problems from their experience, and will be familiar with some of the general problems in the industry already.
- Specialized knowledge is also required of a NED. A big company will already have a sizeable Board of Directors with wide knowledge on various aspects of the industry. A NED must bring something special to the table. Such knowledge comes in handy while navigating through some of the more intricate issues that a company might face, and also help in challenging some of the prevalent notions in the company.
- As far as degrees are concerned, NEDs are supposed to have competent technical knowledge and robust management skills. This translates into a need for a technical degree, maybe even a Masters, along with a business degree.
- An NED will require strong communication skills, both verbal and written. NEDs are needed to work with various departments and interact with multiple people. Often, they are called on to represent the company externally. Furthermore, a NED will have to put their point across convincingly and persuade the board of executives of its feasibility and effectiveness.
- Impartiality and the ability to provide unbiased opinions is something that every NED must have. It is natural that an executive who has been working with a particular company will be loyal to that organization, and their loyalty is likely to compromise their judgement. It is a NED’s job to objectively question company business and finance policy and come up with better alternatives in case there is a gap somewhere.
- Finally, a NED is also an executive working with a company, which is why they must act like it. Good leadership skills, which are a necessity for any executive, will be looked for in a NED as well. These include being able to inspire and motivate other people and take tough decisions and defend them in undesirable situations. Being able to assess risk and benefit before taking a decision is also a requirement.
It is difficult to give an outright ballpark figure while discussing the question of remuneration for a non-executive director of a company. Most companies hire NEDs as a consultative position, which is why they offer pay on a daily basis. Some companies do offer full-time positions on their boards. Furthermore, the benefits of being an NED do not end there. It is after all an executive position, so an NED will be given most of the benefits enjoyed by a company executive, such as travel and subsistence expenses. We recommend conferring with people who have worked as NEDs to assess what a fair salary should look like before accepting the position. Certain factors such as geographical location of the company office and the laws applicable in that area, along with the nature of the industry in question will also come into play while deciding this question. However, it is safe to say that the pay will be good.
Now We’ve learnt about ‘Job Description For Non-Executive Director’, Since there is no legal distinction between executive and non-executive directors, NEDs have the same legal duties, responsibilities and potential liabilities as their executive counterparts. While it is understandable that NEDs will not be able to give the same level of attention to a company, they are nevertheless expected to display the same eagerness and commitment to the success of the company as its executives. A potential candidate needs to ensure that they have a comprehensive understanding of the industry and the company goals before accepting the position. At the end of the day, an NED is an asset to a company that can bring something to the table none of the insiders can, so much so that even small private companies have been looking for appropriate NEDs to aide their business in the recent years.
Frequently Asked Questions:
- At what age can one become an NED?
Since NEDs need considerable experience and technical knowledge, it is safe to say that usually they are past their middle-age before they become one.
- Does this job require a lot of travel?
Larger companies will probably expect their NEDs to travel to various destinations as part of the job, just like their executives.