Non-Executives are vital to any organisation for a number of reasons, bringing specialist expertise and valuable insights. But of utmost importance is their independence of the management of the company, which makes them ideal for monitoring and evaluating companies’ executive management.
In practice you will be expected to focus on matters that are raised in board meetings providing an independent view of the company separate from its day-to-day running.
Gain a clearer understanding of what the role entails by attending the IoD course: The Role of the Non-Executive Director. Plus, review our factsheet: What is the role of the Non-Executive Director?.
To be independent you should have no contractual relationship with the company other than their ‘contract for services’ and not be under the control of any other director or group of directors. The Cadbury report (para 2.2) states that ‘the majority should be independent of management and free from any business or other relationships which could materially interfere with the exercise of their independent judgement’.
The Association of British Insurers and the National Association of Pension Funds have stated that the following could compromise your independence:
- Being formerly an Executive of the Company
- Having any immediate or past contractual relationship with the company
- Selection by an informal process
- Having share options or a pension with the company
- Representing a significant shareholder
- Being judged not to be independent for any other reason
However, there can be exceptions to the above which can be to the advantage of the company e.g. a solicitor or accountant that has worked for the company or if the Non-Executive Director is a minority shareholder. None of the above is mandatory in the legal sense.
Some people argue that experience in the sector in which a business operates is advantageous but it’s not always necessary. It’s more about having knowledge, experience and courage that makes it possible for you to challenge and ask the right questions. By doing this NEDs help companies improve the rigour and effectiveness of their boards.
When applying for Non-executive role you should have regard to the current balance of skills and experience on the board with a view to supporting any areas that might be lacking.
It is thus essential to have strength of character and the ability to stand back from the issue being discussed. Pragmatism and the ability to compromise are also vital. The demands of the role call for courage, integrity, common sense, good judgement, tenacity, diplomacy and an ability to listen carefully and to communicate with clarity, objectivity and brevity.
The specific background, experience and special disciplines required of the non-executive director will naturally depend on the qualities of the other directors on the board and the particular company concerned. Board-level experience of larger - but not necessarily related - enterprises is often needed. Business acumen and the kind of mind that focuses clearly on the matters in hand are essential.
Also you should be able to gain an adequate understanding of the company's finances, its management, its employees, its special capabilities and its markets.
If you’re looking to become a NXD then serving as a school governor is a good way to gain experience. Although they are volunteers, school governors wield the same powers as a NXD in a business and fulfil a similar role – they oversee the school governors’ board. And at the IoD we are actively encouraging members to become involved.
Before you start applying for roles, it may be helpful to discuss your career aspirations and have your CV reviewed by a specialist careers adviser; free appointments are available to IoD members through the Directors Advisory Service.
There are also commercial recruitment organisations specialising in NED recruitment.
Once you have found a role you should arrange for suitable Induction and Training.
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The IoD delivers a directly relevant course: Practical Tips For Becoming a Non-Executive Director