What is a non-executive director and what do they do?
The non-executive director's (NED) role is to offer a creative contribution to the board by providing independent oversight and constructive challenge to the executive directors.
Non-executive directors are not part of the executive team and do not engage in the day-to-day management of the company. Their role is to bring independent judgement on issues of strategy, performance and resources including key appointments and standards of conduct. It is important to note that there is no legal distinction between executive and non-executive directors and NEDs have the same legal duties, responsibilities and potential liabilities as executive directors. While not involved in the day to day running of the organisation, the role of a NED is important and professionals occupying this role must show the same commitment to the success of the organisation as their executive colleagues.
NEDs are usually chosen due to a wealth of business experience and a strong reputation. They may also have specialist knowledge that will benefit the board by providing valuable insights or key business contacts. The role of the NED is highly valued for their objective contribution but the role can be demanding and carries significant responsibilities.
- Contributing to strategic direction by providing creative and informed oversight on the objectives and plans devised by the chief executive and the executive team.
- Taking responsibility for monitoring the performance of executive management, especially with regard to the progress made towards achieving company objectives.
- Determining appropriate levels of remuneration of executive directors (often as part of the remuneration committee).
- Connecting the business and board with networks of potentially useful people and organisations and occasionally representing the company externally.
- Satisfying themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible.
- It is the duty of the whole board to ensure that the company accounts properly to its shareholders by presenting a true and fair reflection of its actions and financial performance and that the necessary internal control systems are put into place and monitored regularly and rigorously. A NED contributes to this through their independent oversight and participation in the audit committee.
Why are they important?
NEDs are appointed to the board to bring independence, impartiality, experience and knowledge to the running of the company. It is important that they are removed from day to day executive management of the company in order to provide a different perspective and offer objective input to the executive leadership team. NEDs perform a key role in the leadership of listed companies and it is becoming increasingly common for private companies to value the objective contribution of NEDs to the growth and governance of their organisations.
Skills needed for this role
NEDs are appointed because they have the experience, calibre and personal qualities that will contribute to the effective leadership of the organisation. They require excellent diplomatic and interpersonal skills and strong mentoring abilities to provide constructive advice and feedback to the executive team.
Strategic Professional Options examinations linked to this role
Career opportunities presented by this role
NEDs are experienced professionals often having achieved senior positions in executive roles. NED roles are available across a wide variety of industries in both publicly listed and private companies. The role is rarely full-time and appropriately qualified individuals can pursue a number of opportunities that exist in their areas of interest.
High level competencies required include:
Advisory and consultancy
A. Gathers and understands financial and non-financial information to develop complete knowledge of the client business and the environment in which it operates.
B. Provides expert advice that will add value to the business and gain advantage.
C. Identify and advise on business partnering to develop strategic relationships to create opportunities, improve performance and solve business problems.
D. Prepare and present business plans and advise on the actions to implement these plans.
A. Links developments in global trade, markets, business practices and the economic environment to required improvements in the financial and risk management of an organisation.
B. Advises on business asset valuations, capital projects and investments using appropriate analytical qualitative and quantitative techniques.
C. Identifies, evaluates and advises on alternative sources of business finance and different ways of raising finance.
D. Communicates and advises on the impact on financial decision making on current developments in regulation, governance and ethics.
E. Assesses and advises on appropriate strategies to manage business and organisational performance regarding business and finance risk and effectively communicates the impact.
Governance, risk and control
A. Evaluates organisational structures and governance to protect the long-term interests of stakeholders.
B. Recommends appropriate strategies to ensure adherence to governance structures and application of best practice internal controls.
C. Identifies and manages risk appropriately.
D. Uses risk management for the best interests of an organisation and its stakeholders.
E. Monitors and applies relevant legislation, policies and procedures.
Leadership and management
A. Applies appropriate leadership strategies to effectively deliver business objectives.
B. Leads, motivates and manages people to optimise performance and effectiveness.
C. Collaborates, supports and works to achieve the objectives of the organisation, applying appropriate digital technologies.
D. Acts proactively and thinks strategically, in anticipating organisational needs, recognising the wider business environment and dynamics.
Stakeholder relationship management
A. Positively develops relationships with internal and external stakeholders.
B. Communicates and gains commitment from internal and external stakeholder.
C. Uses emerging technologies to collaborate and communicate effectively with stakeholders.
D. Applies professional and ethical judgement when engaging with stakeholders.
E. Aligns organisational strategic objectives with stakeholder needs and manages expectations.
Strategy and innovation
A. Applies business acumen and commercial awareness to deliver business objectives.
B. Recommends a range of suitable strategic options from which to develop sustainable plans and objectives.
C. Evaluates, justifies and implements suitable strategic options.
D. Adopts and applies innovative methods to implement strategy and manages change.
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