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A non-executive director is a member of a company’s board of directors who does not hold an executive office. Non-executive directors act as independent advisors and are not responsible for the daily operations of the company.
However, they face the same legal responsibilities and liabilities as the executive directors and are involved in the planning and framing of company policies. Non-executive directors generally receive payments for their services; however, they are not considered employees of the company.
Non-executive directors dedicate a part of their time to overseeing the company, participating in management team meetings or board meetings. They add value by providing a broad perspective of the company’s issues and protecting the interests of shareholders. They are responsible for the following:
Non-executive directors are required to evaluate the performance of the management team in terms of meeting goals and objectives. They also monitor the executive members of the board, may even remove the senior management, and plan the subsequent appointments.
The directors are also required to oversee the performance reporting of the company. Additionally, they ensure that the responsibilities towards the stakeholders are understood and accomplished consistently.
Non-executive directors are responsible for objectively looking at the plans framed by the executive team. They help with formulating and overseeing the corporate strategy by providing constructive criticism and a broader view of the external factors affecting the business.
They provide an external perspective and challenge the existing plans, thus helping to improve business strategies. Non-executive directors also set values and standards for the company in collaboration with the executive partners.
A non-executive director must commit a substantial amount of time for overseeing the company. Hence, when appointed, the director should disclose to the board their other important time commitments. They should keep the board informed of any significant changes to his/her schedule.
They should obtain the chairman’s approval before accepting any additional commitments that can affect his/her role. A non-executive director is needed to take time out of his/her schedule to meet the expectations outlined in the appointment letter.
Non-executive directors share with the executive partners the responsibility of developing frameworks and controls for accessing and regulating risks. They should assure the stakeholders that the financial information is accurate, and financial controls and risk management systems are robust and secure.
Non-executive directors can make connections outside the company and add further value to the company. The external connections can help the company in achieving its objectives and mission.
In addition, a non-executive director can represent the company to outside firms. Working with other board members, they ensure that sufficient financial and human resources are available to meet business objectives.
Non-executive directors can take advice on certain issues and discuss them in the board meetings. They may be authorized to obtain independent training required to fulfill their duties, at the expense of the company.
A non-executive director may be required to actively participate in committee meetings and execute his/her duties as a committee member. They should be made aware of the purpose of the committee and additional responsibilities, if any.
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