Why hire a non executive director (NED)?

What is a non-executive director?

A non-executive director (NED) is an independent board member who provides strategic advice and support to a company. They do this in addition to any executive directors you might have. A NED does not have any executive duties or responsibilities however so they are not involved in the day-to-day running of the business. A NED tends to offer their expertise only as needed and requested by senior management.

A non-executive director is someone who is not part of the operating team of the business

As a NED is not responsible for business operations day to day, they are free to use all of their professional experience to provide support and guidance at a strategic level. Running a business demands focus and attention across all levels of the business from the high level strategy to mid-term goals and day-to-day details. If the C-level executives are too heavily focussed on their daily work, they may not be able to see the broader picture, whereas the NED always can.

Why hire a non-executive director?

Although it can bring an additional expense, bringing in an experienced NED can be hugely positive move. They bring with them a wealth of their own professional experience, often from outside the business, which can help to grow the company in all sorts of ways.

Non-executives can add particular value when helping to buildout a strategic roadmap for the business, identifying areas where growth is possible and also ensuring that there are appropriate controls in place as the business expands. They may also bring other skills and knowledge - such as improving diversity and inclusion or taking on mentorship roles within the organisation.

The role of a non-executive director is to help guide and develop the strategy for the business

Do businesses need a non-executive director?

In short, no. If you would like your business to grow, flourish and succeed in the long term, you need good governance to steer you through inevitable challenges. Good governance therefore has a direct link to business success. A NED transforms the way your business runs while giving you space to make strategic decisions with confidence.

A NED provides independent judgement on issues of strategy and performance, which may validate or challenge your own. They also act as being an additional point of contact for employees, senior managers and/or external stakeholders who wish to escalate important matters beyond their immediate senior or C-level manager.

Non-executive directors are expected to provide:

• An independent perspective on decision making (to check for groupthink)
• Contacts through which the company may benefit
• An understanding of how different stakeholders will be affected by decisions taken by the executive team

The role of a NED may also be to help monitor overall financial performance (though this depends on their own professional strengths). They ensure that the management team performs its duties properly; that there are controls in place and that those controls work effectively. They also ensure regular reviews of corporate social responsibility, diversity and inclusion, and sustainability among other areas. They can also help to manage the business management's communication with shareholders.

How does a non executive director help to create business success?

A good NED will work with the senior team in a supportive way helping to provide an objective view of the business, challenge old assumptions and create a more collaborative approach. In this regard they may also act as a non-official executive coach or professional mentor for members of your team looking for an independent sounding board.

Investing in the services of a NED can bring opportunities that you might otherwise miss out on. They can apply their experiences from other industries and sectors which provide insights into your own business, and which can have a major impact on performance.

Whichever hat you ask your NED to wear, their aim is always to increase the overall value of the business, either by growing revenue, profitability or both! Achieving this will often require some changes within the organisation, improved systems and processes and better people management; these are areas where their experience can add true value to your business.

What is an independent non executive director?

A non-executive director may hold shares or be remunerated in accordance with business success. An 'independent' non executive director, however, is someone who is not connected to the business or management team. They should have no financial or other interest in the business, and should therefore be able to provide truly objective advice and guidance to the board of directors.

Some Non-Executive Directors are required by law to be independent, so that they can advise the company objectively about its activities and performance.

An independent NED is someone who has no other connection with the business and provides objective advice

An independent NED (iNED)  is someone who has no other connection with the business and provides objective advice. They can take a fresh perspective on your business, helping it to become more robust and sustainable. They also ensure that the business is acting in a responsible way, as there should be no conflicts of interest.

For example, in the iNED letter agreement template Genie AI provide, there is a clause which states:

You are considered to be an independent Non-Executive Director and will be identified as such in the annual report and other documentation. If circumstances change, and you believe that your independence may be in doubt, you should discuss this with the Chair as soon as practicable.

How do I find a non-executive director?

Finding a NED can be as easy as using a search engine to find non-executive directors in your area, industry, sector etc.

Do I need to pay a non-executive director? If so, how much?

How much you pay a non-executive director will depend on various factors, similar to how you'd remunerate staff. These factors may include the size of the company, the weight and urgency of their responsibilities, the mass of their experience and the time commitment required.

We find that a typical range is from £10,000 to £50,000 per year for a part time position, your mileage may vary depending on your business sector and needs.

How do I hire a non-executive director? Is there a legal document I can use?

To hire a NED, you can use this NED Letter agreement template provided by Genie AI. If you don't have a Genie AI account, you can sign up for free here.

• Role and responsibilities: who they report to, how they support the business and what they are expected to achieve.
• Remuneration: typically, NEDs receive an annual fee in exchange for the time spent on your business. This is paid monthly via PAYE.

All of Genie AI’s legal templates are open-sourced and written using plain English throughout so that you can understand exactly what information needs to be included in each document. Rather than being weighted in the NEDs favour or the business's favour, we create market-standard legal contracts which favour simplicity, and ease of use.

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