What is a Non-Executive Director?

For startup founders, assembling a board of directors is a big decision. A non-executive director (NED) can play a unique role in the corporate landscape. NEDs are individuals who serve as company directors but are not employees of the company. They can provide valuable insights and guidance to a board. This article will explore the role of NEDs and the benefits of their presence on a board of directors. 

Non-Executive Directors and Executive Directors

There are several different types of directors in a company. NEDs are people who participate in a company’s board meetings but are not involved in the daily operations of the business. Alternatively, executive directors are usually senior employees engaged in the company’s daily operations. Whether a director is a non-executive or an executive director, they must meet the same high standard when carrying out their directorial duties. 

All directors on a board oversee the function of a business. Like executive directors, NEDs assist with aspects such as deciding on new company policies and strategic planning. Well-selected NEDs can bring a vast amount of industry experience to their role. Their contributions can diversify the advice and expertise of a board.

Benefits of Appointing NEDs to the Board of a Startup

As a founder, you will be responsible for many aspects of your startup. You will face many challenges while you establish and grow your business. Advice from those more experienced in the industry can prove invaluable to you. NEDs, if chosen wisely, can bring a fresh perspective and additional experience to your business. 

As NEDs are not employees, they can bring an independent viewpoint as there is a further degree of separation between them and your company in comparison to other types of directors. They can be people external to your business with industry or further specific expertise. 

Additional Considerations Relating to the Appointment of NEDs

You can receive advice from many people in many different ways. You may have access to mentors through your connections, or perhaps your investors are happy to provide guidance. Appointing a NED is a more formal method of accessing such advice and bringing it to your board meetings.

The risks and liabilities of NEDs are typically the same as those associated with executive directors. Company directors’ liability and financial responsibilities mean that considering whether to join a board is a big decision for prospective directors. Like the other directors, the role of NEDs is a legal position. The directors, whether executive, NEDs or another type, are personally liable and collectively responsible for the company. So, in addition to bringing new expertise and a fresh pair of eyes, NEDs are just as committed and accountable to the company as other directors. 

How to Find a Non-Executive Director

If you want to appoint a non-executive director, consider the following:

• the needs of your evolving business;
• the expertise and skills of your current directors; and
• gaps in skillsets or expertise among the board. 

For example, if you find that the board needs further expertise in risk management, you may appoint a NED with particular expertise in that area. 

Board Minutes - First Meeting of Directors

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When you have selected the qualities you would like to find in prospective NEDs, you can begin your search. You or other board members may know somebody who is interested or somebody with the required expertise. Alternatively, some businesses can match your company and its needs with suitable NEDs. 

When you find somebody suitable, consider whether they would engage, remain committed, and work well within the board before appointing them to the role. You will also want to ensure they have the expertise in the particular gap you set out to fill.

Key Takeaways 

NEDs can bring a fresh perspective to your startup. Increasingly, startup founders seek people to take on non-executive directorship roles within their companies. NEDs’ advice, expertise, and external standpoint can be a unique and invaluable source of support for growing businesses. 

The key points discussed in this article are as follows:

• NEDs contribute to a company’s board meetings, but they are not employees of the company; 
• executive directors, on the other hand, are typically senior employees; 
• both executive directors and NEDs are expected to perform the same duties to the same standard; 
• NEDs can be excellent sources of advice for your company; 
• appointing a NED is a formal way of ensuring further independent expertise on a board. 

If you need legal advice about appointing directors in your SME, LegalVision’s experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.