What is a non-executive director?
A non-executive director (NED) is a member of a company's board of directors who is not part of the executive management team. They are not involved in the day-to-day running of the company and instead provide independent oversight and strategic advice to the executive team. Non-executive directors are typically appointed to represent the interests of shareholders and to provide a balance of power on the board. They also play a key role in governance, risk management and financial oversight, helping to ensure the long-term success of the company.
What do non-executive directors do?
Responsibilities
Non-executive directors bring a unique set of skills to the board table, with an emphasis on strategic advice and oversight. Some of the key responsibilities of NEDs include:
- Providing strategic guidance to the executive team
- Monitoring the performance of the executive team and the company as a whole
- Representing the interests of shareholders
- Providing oversight on key business decisions
- Assessing, and assisting with, risk management and compliance
- Ensuring that the company adheres to good corporate governance practices
- Offering a fresh perspective and independent thinking on key business decisions
- Overseeing the performance of the management team and holding them accountable for the company's performance
- Acting as a liaison between the board and other stakeholders, such as shareholders and employees
- Monitoring the company's compliance with laws and regulations
- Providing independent judgement and challenging the executive team when necessary.
What experience or expertise do NEDs need?
Non-executive directors generally need to have a broad range of experience and expertise in order to effectively fulfil their responsibilities. Some of the key areas of expertise that are often sought after in NEDs include:
- Industry expertise: NEDs should have a deep understanding of the industry in which the company operates, including current trends and market dynamics.
- Leadership and management experience: NEDs should have a proven track record of leading and managing teams, as well as experience in strategic decision-making.
- Financial acumen: NEDs should have a strong understanding of financial management, including financial reporting, budgeting, and risk management.
- Legal and regulatory knowledge: NEDs should have a good understanding of the laws and regulations that apply to the company, and the ability to ensure that the company is compliant with them.
- Business acumen: NEDs should have a broad understanding of business operations and practices, including marketing, sales, human resources, and supply chain management.
- Board experience: Ideally, NEDs should have prior experience either in an advisory capacity or serving on a board of directors and be familiar with the governance and decision-making processes of a board.
- Excellent communication and interpersonal skills; NEDs have to be able to manage complex relationships with numerous stakeholders including other board members, shareholders, partners and customers.
It is also worth mentioning that NEDs should have a high level of integrity, credibility and reputation and should be independent of thought, and have no conflicts of interest.
Non-executive pay and salary
What are the typical salary ranges for NEDs?
The salary ranges for non-executive directors (NEDs) can vary widely depending on a number of factors including the size of the company, industry, location, and the level of responsibility associated with the role. However, some general ranges for NED annual pay in the UK can be provided as follows:
- Small to medium-sized companies: £20,000 to £50,000
- Large public companies: £50,000 to £150,000
- Non-profit organisations: NEDs of non-profit organisations typically receive a lower salary than those of for-profit companies. They may receive a token fee or no fee at all.
- Chairs: Non-executive Chairs hold a different role to CEOs or Executive Chairs, and operate independently of the company. In some companies, a chairman may receive an annual fee of £150,000 to £300,000.
It is worth noting that NEDs may also receive additional compensation in the form of shares, options or other benefits. It is common for NEDs to be paid a higher fee for serving on committees of the board, such as audit or remuneration committees.
Do NED wages differ between sectors?
NED positions in certain sectors pay much more than in others. Typically, finance, law and tech pay the highest salaries to non-executives, as NEDs often need more highly specialised expertise to add value within these sectors. Third sector organisations such as Multi-Academy Trusts and the NHS pay less than in the private sector, while charities and not-for-profit organisations often offer no financial remuneration.
What factors can affect salary?
There are several factors that can affect the salaries of non-executive directors. Company size and profitability, level of responsibility, and experience and qualifications all play a part in determining the level of remuneration. Chairs and committee members will typically receive a higher salary and those working in major cities or financial centres will be able to command a better package.
What are the main differences between executive directors and non-executive directors?
- A non-executive director offers independent strategic oversight. Executive directors are focused on the operational aspects of the business and do not act independently but in the interests of the company.
- Non-executive directors focus on taking a long-term view of the company’s plans while executive directors handle the day-to-day running of the business
- NEDs spend far less time working in the business than executives. The former may spend as little as 12 hours a month on their role, while executives are employed on a full time basis.
- NEDs are expected to bring a wide-ranging and holistic set of skills to the table, including governance, risk, and finance. Executives will likely have a more limited, though highly specialised, skillset focussing on one key area.
- NEDs should provide balanced, independent advice and support, and protect the interest of shareholders. Executives’ focus is solely on the success of the company.
Benefits of being a non-executive director
Becoming a non-executive can be an incredibly rewarding experience, offering a new career path, fresh challenges and exciting opportunities. There are several benefits to being a non-executive director, including:
- Professional Development: Serving as a NED can provide an opportunity to gain experience in a new industry or sector, and to learn from other experienced board members.
- Networking Opportunities: Being a NED can provide an opportunity to expand one's professional network and make valuable connections.
- Sense of Purpose: Serving as a NED can be a way to give back to the community, and to use one's skills and experience to make a positive impact.
- Influence: NEDs can play a key role in the strategic direction and governance of the company, and can help shape the company's future. This is especially rewarding when working with early-stage startups or not-for-profits.
- Reputation: Serving as a NED can be an important addition to your professional CV and can enhance reputation.
Risks of being a non-executive director
Unlike board advisors, non-executive directors carry greater responsibilities and, therefore risks, which include:
- Liability: Like executive board members, NEDs can be held liable for any actions or decisions that they take as a board member, including those that result in financial losses for the company.
- Reputation: A NED’s reputation could be damaged by negative publicity or reputational damage that their company may suffer, especially if it’s as a result of their actions or decisions.
- Time management: Serving as a NED requires good time management and a different approach to a full time job, especially if you hold a portfolio of roles.
- Compliance: NEDs are required to comply with a variety of laws, regulations, and best practices, and any failure to do so can result in legal and financial penalties.
How to become an non-executive director
Becoming a non-executive director isn’t an overnight process. Typically, gaining your first non-executive director role can open the door to further board appointments but getting your foot in the door can be difficult.
Many NEDs build their experience by taking on pro bono roles either in an advisory or non-executive capacity. These roles are generally working with early-stage businesses or not-for-profit organisations and provide the opportunity to build skills, knowledge and experience in a number of areas, with these kinds of organisations wanting to maximise your time and expertise. There are hundreds of startups looking for advisors and NEDs on the Connectd network, across a variety of sectors and industries. You can join our network of non-executive directors here.
Building a strong network of professionals, especially those within your target sectors can be hugely beneficial to landing a NED role. Recommendations and referrals are a very common way of landing board roles, so the more connections you make, the higher your chances of your name being put forward for a role.
Another great way of amplifying your value is to position yourself as a subject matter expert, whether that be focused on your industry or sector specific expertise, or particular NED skills. Seek out opportunities such as webinars, events, panels or articles and make sure you use your LinkedIn profile to demonstrate your knowledge, through posting articles and comments that are relevant to your career aspirations.
NEDs are expected to have a solid grounding in specific areas such as governance, risk management and financial oversight. These will be unknown quantities to many of those entering the non-executive sphere, and specialist training and learning resources, such as those available in Connect’s NED Academy, can provide you with the expertise and confidence needed to secure a non-executive director role.
