What does NED mean?
NED is an abbreviation which stands for non-executive director. A non-executive director is also commonly referred to as an independent director or board member, especially in the US.
What does a non-executive director do?
A non-executive director sits on the board of directors. Their role under the guidance of the Chair is to provide third-party oversight to ensure the company is well run by the executive management team.
The Institute of Directors sums up the essence of the role: “the non-executive director's role is to provide a creative contribution to the Board by providing independent oversight and constructive challenge to the Executive Directors.”
What does independent director mean?
Independent director is often used interchangeably with the term non-executive director. However, independent directors are those that do not have any significant relationship past or present with the company (such as being a former employee or a major customer) beyond their non-executive role, and can have only a limited shareholding or investment in the company.
So while all independent directors have the same role on the board as non-executive directors, not all non-executive directors can be considered independent directors.
Why are independent directors important?
Independent directors ensure the long-term success of any organisation by facilitating effective, entrepreneurial and prudent management that can deliver results. They help organisations avoid “groupthink” by providing independent perspectives on key issues without having a financial or personal link to the company.
What does a senior independent director do?
The senior independent director (SID), often referred to as the lead independent director in the US, provides a sounding board for the Chair and acts as an intermediary for the other directors when required. The senior independent director should be available to shareholders if the normal channels of Chair, chief executive or other executive directors are not functioning properly. In addition, the senior independent director is expected to lead an annual review by the independent directors of the Chair’s performance.
How many non-executive directors should be on the board?
Smaller companies typically have one or two non-executive directors, with one of these usually being a finance NED. For bigger companies, ideally half of the board should be made up of NEDs - reflecting that each part of the executive on the board usually has a non-executive equivalent. If the Chair of the board is a non-executive (usually the CEO is the Chair in the US), then it’s expected that at least a third of the board is made up specifically of independent non-executive directors.
How many independent directors are required on a board?
In public listed companies there are usually more non-executive directors on a board than executive directors, and at least a third of all directors should be independent directors. Small businesses are unlikely to have this ratio of NEDs or independent directors at board level and instead seek one or two independent directors whose expertise covers the area they most need help with to flourish.
Are NEDs paid?
NEDs are normally paid except on charity boards where they are usually known as trustees and work pro bono.
How much do non-executive directors get paid?
NED fees vary greatly according to the size of the company they are contributing to. Day rates range from £500 per day to over £3,000 per day. Total remuneration can range from £5,000 to over £100,000 per year depending on the company size and role demands. Independent directors often also have an equity stake in the business (or options) although typically the percentage is small. In private equity or venture capital backed businesses the value creation opportunity can be significant. From time to time, Nurole conducts compensation surveys on non-executive compensation across different company types. If you are interested to learn more get in touch.
What is the difference between an executive and a non-executive director?
An executive director works for the company (usually full time) and has a senior role responsible for the strategic and tactical management of the division they run. Typically they are C-suite roles, such as Chief Executives, Chief Financial Officers, Chief Technology Officers, and other executive division heads.
A non-executive director works in an advisory role as a consultant. The workload can vary, but typically it might be 10 to 40 days a year, including board meetings.
What is the role of a non-executive director?
Primarily they are there to provide independent advice based on their knowledge and experience to help the company succeed. They should also ensure the decisions of the executive directors and the board reflects good corporate governance and standards.
What makes a good non-executive director?
Non-executive directors (and independent directors) should have high ethical standards and act with integrity. Most importantly they are an opportunity for the board to avoid ‘groupthink’ on the issues facing the company and give alternative viewpoints where they feel it is appropriate. They should support the executive team and monitor its conduct, demonstrating a willingness to listen, question, debate and challenge. A good relationship with the Chair is crucial for them to be effective, as is a dedication to the role, ensuring they are familiar with board reports and current issues facing the business.
NEDs give the board cognitive diversity, and a chance to hear new solutions to the problems they face from people who are not caught up in the day to day dealings of the executive team. Learn more about becoming a better board director.
Are non-executive directors employees?
NEDs are not employees, and instead, have a consultant-style relationship with the business. They are however legally responsible for the actions of the company, within reason, just the same as the employed executive directors. While for a long time many non-executives provided services through a limited company (and some still do), they are typically considered “office holders” and for the purposes of tax and NI in the UK are treated in the same ways as employees. This means employers are required to operate PAYE in respect of any fees paid to directors.
What's a portfolio career?
A portfolio career involves taking on a range of non-executive roles as opposed to having an executive role. Successful executives or investors with good experience across a number of businesses, or with landmark career achievements to their name, are likely to be in a position to build a portfolio career, including acting as a NED for a number of companies. This would involve them sitting on several different boards as a non-executive director or independent director. Sometimes executives can make a mistake of going into a portfolio career too early. Click here to learn more about building your portfolio career.
What does a portfolio career CV look like?
A portfolio career CV requires different emphasis from what would typically be emphasised in an executive CV. More emphasis is usually placed on non-executive roles and the value the individual can bring to the board as opposed to what they have done. Aspiring non-executives struggling to get their first role should consider investing in specialist advice on how best to present themselves.
Are non-executive directors liable?
Non-executive directors and executive directors have the same legal duties and obligations if something goes wrong. Since NEDs are likely to only be involved with the company a few days a month, it’s important that they complete due diligence both before they join and while on the board to ensure the company they are working for is acting responsibly. Ultimately it is the responsibility of the NED that they have taken reasonable care to carry out their duties effectively if they are to avoid liability. For more detail, download this document on the liability of NEDs at the ICSA website.
Can non-executive directors be shareholders?
Yes, non-executive directors can be shareholders. It is often seen as a benefit that the non-executive director should have a vested interest in the company doing well. The exceptions are if the non-executive director could be considered a major stakeholder - here it may be considered that their view could be too aligned with the executive, or that they have too much power over the executive or that their decisions may be based on share price alone.
Are non-executive board member vacancies advertised?
Typically it is only government entities who advertise their board vacancy roles in an open market because they have to by law. The non-executive roles that can be found by becoming a member of Nurole are unusual for their quality and the types of companies (including plc, private equity, venture capital and family owned businesses).
Where can I find non-executive director vacancies?
We established Nurole because we wanted to democratise access to board level roles, making board roles available to the best candidates not just those who happened to know the right people. If would like to become a Nurole member, you can request a free invitation here. However, if you have spare time to invest building relationships, Chairs, non-executive directors and traditional board level headhunters can also offer a further source of non-executive director vacancies. However, it is not required.
Where can I learn how to become a non-executive director?
Official training as a NED isn’t required as it’s the knowledge and experience you already have that a board are interested in, but there are a number of courses available from the likes of the Institute of Directors, The FT and various business schools. It’s also a good idea to see if your professional body (such as the ICAEW for chartered accountants, for example) offers courses and information about the role. It’s unlikely that any qualification you do will be enough to get you a role on its own and in our experience many of the courses are aimed at quite a basic level but it may help you to feel more comfortable and do a better job once in the position.
Does a startup need a non-executive director?
Start-ups face specific challenges where non-executive directors can provide exceptional return on investment, helping to identify opportunities, avoid mistakes or help with fundraising. Learn more about finding non-executive directors for startup boards.
If you are looking for senior executive and non-executive director roles, Nurole's innovative recruitment platform can help.