Decades ago, a Non-Executive Director (NED) would have been seen as a non-active participant in the affairs of a company after its incorporation. Fast-forward to today’s business world, and there are a lot of changes in the duties and responsibilities of such a role. As the world’s business space continues to grow, there’s an increasing need for businesses to adapt or suffer irreparable losses.
Non-executive directors are not just figureheads of organisations. It is their primary duty to offer an unbiased, independent viewpoint as their input to any company’s decision-making process. In turn, the exercising of this function helps to promote corporate accountability and governance. It is important to remember that non-executive directors continue to rank among the top executives in any company, and their contributions are highly valued.
This article will provide an overview of the key responsibilities of a non-executive director and highlight how they can affect businesses’ profitability and long-term viability.
Who Is A Non-Executive Director?
Non-executive directors are not your everyday, regular business workers. They are part of a company’s Board of Directors. They are put in place to act as guides in ensuring that what the company achieves is in line with its vision and mission. Think of them as having an eagle view of the business.
As a preliminary step, they are taught to understand the company’s interests more objectively than executive directors, who may have an agency issue, a conflict of interest between management and shareholders, or other interested parties. Ultimately, their duty isn’t entirely based on their qualifications or skills, as these sets of directors do not hold C-level or managerial positions.
Non-executive directors may receive compensation for their services, even though they are not full-time employees. They may be compensated through fees, cash, or company stock. Their pay is based on the industry, the size and scope of the business, and the time they put into working for the organization. At other times, non-executive directors might receive considerable compensation for their work since they bring with them a wealth of experience and connections.
What Is The Difference Between A Non-Executive Director And An Executive Director?
To begin, it’s imperative to understand that a non-executive director and an executive director are two different roles in a company. Having understood who a non-executive director is, it’s best to compare him with his counterpart. An executive director serves as a manager and oversees the day-to-day operations of the company. An executive director’s additional duties are not limited to corporate affairs alone.
There are other functions in which they take part, including a strategic approach to following and working within a budget, directing fundraising initiatives, increasing membership, and assisting with public relations. Although an executive director’s function and responsibilities are comparable to those of the President and Chief Executive Officer (CEO), their pay is typically substantially less. Many executive directors occasionally serve without compensation and on a voluntary basis.
8 Roles of a Non-Executive Director
To better understand the differences between a non-executive director and an executive director, here’s a look at a non-executive director’s roles and duties.
1. To Support the Role of an Executive Director
Non-executive directors are often chosen based on their knowledge, experience, and capacity to offer insightful opinions from a distance. Unlike executive directors, who are involved in day-to-day operations, non-executive directors focus on supporting the board leaders. Their work varies based on the tasks and what the company needs to achieve in the short or long term.
2. Promoting Effective Corporate Governance
Upholding the ideals of sound corporate governance is one of the primary duties of non-executive directors. NEDs ensure the business runs ethically and openly by closely examining the senior management’s decisions and actions. When necessary, they challenge initiatives and speak out for stakeholders’ interests, including those of employees and shareholders, during board meetings.
3. Independent Oversight and Risk Management
Non-executive directors offer an unbiased viewpoint in the boardroom. They can evaluate prospective risks and opportunities while minimizing any biases arising during executive decision-making. NEDs help to create a more comprehensive risk management framework by conducting risk assessments and performing due diligence, which lowers the possibility of unforeseen difficulties and promotes a culture of caution.
4. Providing Expertise and Experience
Non-executive directors are frequently chosen by companies for their expertise in business. Sometimes, this could be a speciality or a general understanding of the framework of business growth. NEDs can provide insightful counsel, particularly in times of crisis or change. Their distinctive perspectives and varied backgrounds aid in valuable board discussions, fostering more informed choices and creative problem-solving techniques.
5. Evaluating Executive Performance
Think of it this way. If company executives checkmate business staff and employees, who checkmate the executives? When it comes to business growth, executives understand everyone has to stay grounded. Non-executive directors, in their capacity as unbiased watchdogs, are responsible for evaluating the top management team’s performance. Beyond financial indicators, this assessment may also consider a person’s leadership qualities, commitment to company values, and achievement of strategic goals. NEDs’ constructive criticism can increase executive performance and eventually help the organization.
6. Fostering Board Diversity and Inclusion
Non-executive directors frequently improve the diversity and inclusiveness of the board. Their role in supporting ethnic, gender, and socioeconomic diversity brings a variety of viewpoints, making the board more open-minded with polarized views. This function of NEDs is crucial for the company’s performance because a more varied board will naturally outperform its homogeneous counterpart.
7. Appointing and Compensating Top Management
Non-executive directors typically participate in discussions on selecting top management staff and deciding how much they should be paid. Their advice ensures that leadership selections are made on merit and in line with the business’s long-term objectives and core values. NEDs evaluate top management staff salaries to ensure they are not just a lure for overreaching individuals but those with the right qualifications and capabilities.
8. Enhancing Stakeholder Communication
Non-executive directors serve to encourage transparent interaction between the business and its stakeholders. They ensure shareholders are adequately informed on the company’s performance, essential choices, and prospects. The company and its shareholders benefit from this open communication, which promotes trust and a healthy partnership.
Conclusion
A non-executive director’s function greatly influences business success and long-term viability. NEDs provide objectivity, knowledge, and a dedication to sound corporate governance as independent overseers. Their responsibilities include cultivating diversity and inclusion, promoting risk management, and monitoring executive performance. Also, by contributing to making more informed decisions, these individuals bring a fresh perspective to board meetings. Ultimately, their persistent efforts help businesses follow ethical standards, meet new difficulties, and successfully negotiate the ever-changing business environment.
Every director plays an important role in a company’s functioning and hence appointing the right person for the job is a must. If you are a foreigner wanting to incorporate your company in Singapore and looking out for a nominee director, you should contact a reliable corporate service provider.
