Recruit the right non-executive directors

Rather than assume responsibility for the day-to-day running of the company, the role of a non-executive director is to provide a business with guidance and help in making longer-term, strategic or specific, project-based decisions.

Usually a non-executive director will also have responsibility for monitoring and scrutinising the performance of the executive management or for delivering specialist expertise.

The exact role assumed by a non-executive director will depend in part on the nature of the business. In a start-up business, for example, a non-executive director may act as a mentor, using their experience to guide the fledgling enterprise as it grows and develops.

In other businesses, non-executive directors may be recruited for their ability to offer support and advice in specialist areas such as marketing or product development or financial restructuring.

Often a senior non-executive director is the contact for shareholders who wish to express concerns about the management or performance of the company.

Above all, a non-executive director is there to offer impartial, independent advice.

Ideally, a non-executive director should complement rather than simply duplicate the skills and knowledge of the executive directors. What the non-executive director brings will be experience, business acumen, wide-ranging contacts, insight and, of course, objectivity.

Terms

Most non-executive directors work on a part-time basis. They can be employed by the business or they can be self-employed. Usually non-executive directors are given contracts that set out the number of hours they are expected to work, the responsibilities they are to assume and the period of notice for the termination of their engagement.

Non-executive directors are paid fees (or a salary if they are employed) for their time and expertise. However, the level of remuneration, as a proportion of their total income, should not be so high as to imperil their independence and impartiality.

Although a non-executive director's contract can cover an open ended period of time, the Combined Code on Corporate Governance recommends that a non-executive director employed by a business for longer than nine years is no longer deemed to be independent.

Duties

In general terms, there is no distinction between the duties of a non-executive director and an executive director. Among other things, the non-executive director must be diligent and committed, must act within powers set out in the company's memorandum of association, must exercise independent judgment, must avoid conflicts of interest, and must act in the best interests of the company.

The Combined Code on Corporate Governance, however, adds specific duties that a non-executive director must fulfil: "Non-executive directors should scrutinise the performance of management in meeting goals and objectives and monitor the reporting of performance. They should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, executive directors, and in succession planning."

Since non-executive directors have the same legal duties as executive directors, they share the same liabilities. A non-executive director can be disqualified if it is found they have acted wrongly whether in deed or by omission.

This is only a brief outline of the role of non-executive directors. Any business planning to appoint a non-executive director should seek professional guidance.