Business Article - Non-Executive Directors
In today's society, people seem to be losing their general faith when it comes to the activities that are being carried out by many senior business figures and politicians. Accordingly, the role of the non-executive director is becoming increasingly important when it comes to modern corporate governance. The modern 'non-executive' director is a position which is appointment based both on professional and objective criteria, and this is a position that can easily add real live value to any organization type.
A non-executive director, also known as an NED or an NXD, or even as an outside director, is a member of the company who sits on the board of directors for a specific company, but who does not form a part of the company's management team. A non-executive director is not typically an employee of the company at all, or even affiliated with it in any way shape or form. Non-executive directors are not the same as inside directors, who are members of the board of directors who also service as executive managers for the company in question, oftentimes as a corporate officer. There are many responsibilities held by non-executive directors, including all of the following:
- Strategy – Non-executive directors are responsible for consecutively and consistently challenging the development of strategy, as well as contributing their own ideas to the development of this strategy. This is a large part of the duties of a non-executive director, both for large corporation-style companies, and small start up companies as well.
- Performance – One of the duties of a non-executive director is to completely and fully scrutinize the performances of every person on the management team to ensure that they are completely meeting all of their goals and objectives. Non-executive managers should also monitor senior management, and when it is necessary, a non-executive manager should be prepared to remove senior management and to participate in the process of succession planning.
- Resources – Non-executive directors are responsible for maintaining company resources, and completing monitoring and removal tasks relating to those resources.
- Appointments – Non-executive directors are responsible for monitoring and maintaining any and all appointments relating to the business.
- Standards of Conduct – Perhaps as the largest and one of the most important duties of a non-executive director, the non-executive director or NXD is responsible for maintaining a standard of good conduct within the organization. This involves monitoring management staff and making necessary changes to promote the highest level of good conduct within the organization.
Generally speaking, the non-executive director is not going to be involved in the day-to-day operations of the business. Instead, the non-executive director's duties lay in monitoring executive activity, and contributing when necessary to strategy development. The largest differences in how productive your non-executive director is lies in what type of business you are running.
For example, in large and formal type organizations who have a much more strict set of standards when it comes to corporate governance, the chairman of the board role as well as the CEO or chief executive officer role are typically separated. The chief executive officer and the executive directors are in charge of running the day-to-day aspects of a organization, and are also responsible for putting into action any strategies or policies that are agreed upon by the board of directors.
At any and all board meetings held by the firm, the executive directors are responsible for reporting on exactly how well the organization is being run, as well as recommending any future actions for investment and strategic direction. The non-executive directors, then, are responsible for reviewing this information that has been provided to them, in order to ensure that the entire organization or business is being fun in such a way that all of the shareholders are being benefited, and that the executive directors running the company are not doing anything that may be considered to be a breach of the amount of trust that was placed in them.
On the other hand, in small and medium sized business firms, the chief executive officer or CEO is typically the owner and the founder of the business or organization, which means that the non-executive director's role more closely resembles that of an experienced business advisor rather than that of a mediating party. Even when it comes to a situation like this, there are still many substantial legal responsibilities that the non-executive director must deal with, in addition to liabilities to check facts so that the non-executive director can determine whether or not all corporate laws are being complied with on the behalf of the business entity. In general, a small or medium sized enterprise can probably benefit much greater from the use of a non-executive director than a larger organization would be able to.
Small organizations and businesses typically cannot afford a large number of different full time directors who are experienced in all of the tasks and duties that a normal director would be asked or expected to perform. The owner or the chief executive officer in charge is usually responsible for making a large number of decisions, including those that relate to strategy down and individual action plans. There is only a limited opportunity for delegation, which can oftentimes leave the CEO in an extremely lonely position as they would be required to make all of the decisions without ever having anyone there who they can discuss alternative ideas with. This is the type of situation where hiring a non-executive director would easily add unexpected real value to the business model, as this non-executive director could become a sounding board for many ideas, providing great benefits in the process through their expertise, their experience and the pool of contacts that they bring to the table.
There are many legal responsibilities and legal liabilities that absolutely must be taken into consideration, and it is because of these that a non-executive director will typically expect a reasonable fee in return for their services. The cost is still typically much lower than what you would experience by hiring a normal consultant or even an interim director. Non-executive directors are also much more cost effective because these directors tend to attempt forming long-term relationships with the owners of the company and the organization itself, which means that once you have found a non-executive director that works well with the needs of your company, they may stick around for a good long time, continuing to be useful, helpful and extremely necessary over time.
Are you thinking about recruiting a new non-executive director? You should never attempt to restrict your options for people only to people who resemble you, or whom you know from elsewhere. It would actually be a much greater benefit for you to simply recruit someone who can challenge each and every one of your assumptions, and someone who has a skill set which does not match your own in many facets. The more different this person is to you, the more likely they will benefit you, by challenging your ideas, negotiating new ones, and offering new skills, knowledge, expertise and contacts that you did not have in your arsenal before.
It seems as if many people have heard of the term non-executive director, but that they have never explored the meaning of the term. This means that there are potentially business owners out there who are missing an integral part of their management team without actually ever knowing it. But those who are aware of what a non-executive director is are already reaping the great benefits of having this unique consultant on their team. Non-executive directors bring knowledge, expertise, understanding, experience and new contacts and resources to the table when they are recruited to work for your firm. None of these things could ever even begin to be viewed as a flaw or a failure, as they are characteristics that will continue to be valuable to both large and small companies throughout the years.
Because there is such a vast different in the usefulness and duties for a non-executive director in a large corporation setting, and hiring one for a small or start up business, it is important to determine exactly what recruiting a non-executive director will actually mean for your company. Will your non-executive director be your advisor, or would you prefer that they do most of the work on their own? Will you work closely with them, or is the non-executive director a position that you cannot see yourself working with? Once you have determined what kind of relationship you want to have with a non-executive director, you can hire one who will blow you away, and your business will see a great increase not only in organization, but also in communication and possibly even strategy for profit.