Non-executive directors - making or breaking a business?

Are you a non-executive director? Do you have non-execs on your board?

Along with directors’ remuneration, one topic of conversation that never seems to be out of the headlines these days is the role of non-executive directors (“NEDs”) and their impact on the companies that they are appointed to.

In response, the Institute of Chartered Secretaries (“ICSA”) has recently published new guidance aimed at non-executive directors. This guidance outlines, amongst other things, the care, skill and diligence NEDs should take prior to joining the board of a company, and, that should also to be taken when accepting an appointment in order to reduce their liability in the future.

It has long been a source of contention as to whether NEDs offer any real long-term benefits for companies. This is underlined by a somewhat negative portrayal by the press of such individuals who can range from high-profile celebrities to politicians or to those from a professional background, such as a partner in a firm of solicitors. The perception can be that NEDs accept numerous positions on boards for substantial fees but are then unable to dedicate sufficient time to the businesses and lack any real knowledge about the overall operations.

Conversely, in many companies NEDs have proved to be an invaluable asset. They can provide much needed balance, objectivity and diversity to boards, along with a wealth of knowledge, experience and expertise.  Indeed, well known and respected individuals such as rower Sir Matthew Pinsent, athlete Dame Kelly Holmes and the retired newsreader Anna Ford all hold non-executive positions on boards. Individuals from diverse backgrounds such as these are often appointed to offer a fresh perspective to an otherwise commercial and corporate world.

The latest ICSA guidance stems from the UK Corporate Governance Code, which is primarily aimed at listed companies.  However, private companies are also encouraged to conform to the Code, which sets out a series of principles highlighting good practice behaviours for all companies, with emphasis given to the importance of a balanced board including executive and non-executive directors.

Increasingly NEDs are playing an important role for the small to medium sized enterprises in offering guidance on how to manage companies to a high standard that will ensure long-term growth. A family-owned business may well be advised to consider recruiting a NED to the board in order to strengthen and progress the business. The latest ICSA guidance should therefore be read with interest by any potential non-executive directors to this size of business in an environment where compliance and regulation is ever changing.

Whether being appointed to a listed company or to a smaller-sized entity, NEDs can find themselves in a difficult position. They are legally liable in the same way as the executive directors, particularly in their statutory duties to the company.  However, this also extends to all relevant legislation, including the Companies Act 2006, health and safety legislation etc. and sector specific regulators.

Good corporate governance should always be a priority for any company as this underpins its development with the board at the heart of ensuring strong financial performance going forwards.

Guest blog by Sarah Alker. Sarah specialises in providing secretarial services which ensure companies comply with their statutory obligations and other ad-hoc company administration services. She has a modern languages degree from the University of Exeter and joined Jordans in 2007.


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