It is not uncommon for me to work with people who are entering their first NED role and are looking for advice about the way they should operate, what they should expect and what should be expected of them.
If you are looking to add a Non-Executive Director (NED) to your board in this article I will cover everything you need to know about a Non-Executive Director, from what to expect from them to how to measure their success.
NEDs are invaluable resources that can provide a unique perspective to the business operations of your company. Used well they can catapult your business to even greater success.
What is a Non-Executive Director (NED)?
A Non-Executive Director (NED) is an independent professional who is appointed by the board of directors to advise, monitor, and provide guidance to the company. Unlike executive directors, NEDs have no operational or day-to-day involvement in the company’s activities. They are generally employed as part-time or full-time directors and are not employed as employees of the company.
NEDs are typically appointed to the board of directors for their expertise and experience in a particular field or industry. They are expected to bring a fresh perspective, giving the board an outside opinion on various business matters. NEDs are also expected to provide an unbiased opinion on the management and operations of the company.
NEDs are trusted to provide an objective viewpoint on the company’s operations, performance, and strategy. They are expected to act as a sounding board for the board of directors, offering guidance and advice on a range of topics. They are also expected to challenge the board and management on certain decisions, acting in some way as “trusted wise friends” to the board and the CEO, ensuring that the company is acting in the best interests of its stakeholders.
What to Expect from a Non-Executive Director
When you appoint a Non-Executive Director, you should expect to have someone who is committed to the company’s success and who is willing to challenge the board and management on their decisions. A Non-Executive Director is also expected to be an active participant in the board meetings, providing an outside perspective or bringing a specific skill set on the topics discussed.
In addition to providing an outside perspective, a NED is expected to provide an objective opinion on the company’s operations, performance, and strategy. They must be able to identify risks associated with the company’s activities and suggest ways to mitigate these risks.
NEDs are also expected to provide guidance and advice on a range of topics, from finance and accounting to legal matters. They should also be able to provide an independent opinion on the company’s performance.
Benefits of a Non-Executive Director
There are numerous benefits to having a Non-Executive Director on your board. Here are some of the key ones:
- Unbiased Perspective: A NED can provide an unbiased opinion on the company’s operations, performance, and strategy. This can help the board make more informed decisions and ensure that the company is acting in the best interests of its stakeholders.
- Risk Management: A NED can identify risks associated with the company’s activities and suggest ways to mitigate these risks. This can help the board make better decisions and minimize the potential for losses.
- Accountability: A NED can help hold the board and management accountable for their decisions. They can help ensure that the company is acting in the best interests of its stakeholders and that the board is making informed decisions.
- Diversity: A NED can bring a fresh perspective to the board. This can help the board make better decisions and bring new ideas to the table.
How to Integrate a Non-Executive Director into Your Board
When you appoint a Non-Executive Director, it is important to ensure that they are integrated into your board as seamlessly as possible.
Here are some tips for integrating a new NED into your board:
- Introduce the NED: Make sure to introduce them to the other board members. This will help the other board members get to know the NED and understand their role.
- Explain the Role: Explain their role to the other board members. This will help them understand both the reason for their appointment and their responsibilities.
- Set Expectations: Make sure to set expectations for the NED. This will help ensure that they understand and agree their role and what is expected of them.
- Discuss Topics: Discuss the topics that will be covered in the board meetings. This will help them understand the topics that will be covered and provide a better understanding of the company’s operations and performance.
- Make Introductions: Make sure to introduce the Non-Executive Director to other key stakeholders, such as the company’s customers, suppliers, and investors. This will help them understand how the company interacts with its stakeholders and what their expectations of the company are.
The Difference Between a Non-Executive Director and An Executive Director
It is important to understand the difference between a Non-Executive Director and an Executive Director. A Non-Executive Director is an independent professional who is appointed by the board of directors to advise, monitor, and provide guidance to the company. They are generally employed as part-time or full-time directors and are not employed as employees of the company.
An Executive Director, on the other hand, is a member of the board of directors who is responsible for the day-to-day operations and management of the company. They are typically employed as an employee of the company and are responsible for overseeing the company’s operations, performance, and strategy.
How to Utilize a Non-Executive Director in Your Business
Once you have appointed a Non-Executive Director, you should make sure to utilize them in your business.
Here are some tips that will help:
- Ask for Input: Make sure to ask the Non-Executive Director for their opinion on various topics. This will help you get a different perspective and ensure that the company is making informed decisions.
- Listen to Advice: Make sure to listen to the advice provided by the Non-Executive Director. This will help ensure that the company is acting in the best interests of its stakeholders and that the board is making informed decisions.
- Challenge Decisions: Make sure to allow them to challenge the board and management on certain decisions. This will help ensure that the company is getting the most from the Non-Executive Director.
How to Find a Non-Executive Director for Your Business
Finding a good Non-Executive Director for your business can be a challenging task.
Here are some tips for finding an NED for your business who is a good fit:
- Networking: Make sure to network with other businesses and individuals in your industry. This will help you find potential NEDs who have experience in your industry.
- Professional Organizations: Make sure to join professional organizations in your industry. This will help you find potential NEDs who have experience in your industry.
- Recruiting Firms: If needed, be sure to utilise recruiting firms to find potential NEDs. They have many contacts and know their own portfolio of connections well. They can help you appoint the right fit for your business.
How to Measure the Success of a Non-Executive Director
Once you have appointed a Non-Executive Director, it is important to measure their success.
Here are some tips for measuring their success or otherwise:
- Performance Reviews: Make sure to conduct performance reviews with the Non-Executive Director. Just because they are not “employees” of your business does not mean that you should not give formal feedback to them at least annually.
- Feedback: Make sure to ask for feedback from the other board members on the Non-Executive Director’s performance. This will help you measure the NED’s performance and identify areas for improvement.
- Goals: Make sure to set goals for the Non-Executive Director. This will help you measure their performance and ensure that they are meeting the expectations of the board.
- Metrics: Make sure to track and measure the Non-Executive Director’s performance using previously agreed metrics.
In Summary
Non-Executive Directors are invaluable resources that can provide a unique perspective to the business operations of your company. They can provide an objective opinion on the company’s operations, performance, and strategy. They can also help to identify risks associated with the company’s activities and suggest ways to mitigate these risks.
When you appoint a Non-Executive Director, it is important to ensure that they are integrated into your board as seamlessly as possible. It is also important to make sure to utilize them in your business and measure their success.
If you are looking to add a Non-Executive Director to your board, make sure to keep these tips in mind. This will help ensure that you get the most out of your Non-Executive Director and that they are able to provide the most value to your business.