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Outside director

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Outside director

A non-executive director (NED, also NXD) or outside director is a member of the board of directors of a company who does not form part of the executive management team. They are not employees of the company or affiliated with it in any other way and are differentiated from inside directors, who are members of the board who also serve or previously served as executive managers of the company (most often as corporate officers).

Non-executive directors are sometimes considered the same as an independent director,[1][2] while other sources distinguish them from independent directors saying non-executive directors are allowed to hold shares in the company while independent directors are not.

Non-executive directors have responsibilities in the following areas, according to the Higgs Report, commissioned by the British government published in 2003:[3][4]

  • Strategy: Non-executive directors should constructively challenge and contribute to the development of strategy.
  • Performance: Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitoring and where necessary removing senior management, and in succession planning.
  • Risk: Non-executive directors should satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and defensible.
  • People: Non-executive directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing and where necessary removing senior management, and in succession planning.

NEDs should also provide independent views on:

  • Resources
  • Appointments
  • Standards of conduct

Non-executive directors are the custodians of the governance process. They are not involved in the day-to-day running of business but monitor the executive activity and contribute to the development of strategy.

In 2011 the Financial Times launched the first formal qualification specifically for Non-Execs. The Non-Executive Directors Certificate is a level 7 masters postgraduate qualification accredited by Edexcel.

See also

References

Further reading

External links

  • Financial Times - Non Executive directors' club
  • European Directors and Board Members Association
  • CIPD non-executive directors' resource
  • ITNEA, an Association for non executive directors and chairmen
  • ITNEA
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