The role of the non-executive director

Conclusion

The role of NEDs today is vital for all of us. Their performance on company boards has a direct bearing on the shareholder value of the company and ultimately the security of our pensions. In the public sector, effective NEDs also have a direct influence on both our welfare and our wealth. As directors of public sector organisations they can exert significant influence on the expenditure of taxpayers’ money.

Consequently, as a result both of their responsibilities and of the rapidly changing environment in which companies operate, the NED role today is complex and demanding. It requires skills, experience, integrity, and particular behaviours and personal attributes. NEDs have to deal with interesting dilemmas: they need both to challenge and to support the executive directors; be both engaged and non-executive; and be both independent and involved. Independence, in particular, has become an increasingly important attribute for NEDs. The exercise of independent thought and judgement is generally regarded as likely to lead to more effective boards.

The operating climate for companies and their directors shows no sign of a reduction in the rate of change. An example of this is the new Companies Act. These changes, and the significantly increased responsibilities of directors in general, mean that being an effective NED is no longer a job for the lucky amateur. NEDs, to remain effective, will have to be prepared to acquire and develop the relevant technical and interpersonal skills. This takes time. It is no longer acceptable just to turn up for board meetings having read the board papers the day before.

Previously NEDs performed their functions without any evaluation of their performance; indeed they frequently saw their role as being the evaluators of performance of others. Today, like any other director, NEDs must expect their performance to be subject to, at least, annual review.

A positive trend around the role of NEDs is that there is now much greater clarity than there was in 1996. Similarly, there is more training and general assistance available to NEDs. Key to this was the Higgs Report published in 2003.

It is worth repeating that ‘the fundamental job of NEDs is to see that the company is properly run, but not to run the company’.

References

Cranfield School of Management, The Female FTSE, November 2005 DTI, Building better boards, December 2004

Review of the Role and Effectiveness of Non-executive Directors. The Higgs Report, January 2003

Patrick Dunne, Directors’ Dilemmas, 2nd rev. edn, London: Kogan Page, 2005 Patrick Dunne, Running Board Meetings, 3rd rev. edn, London: Kogan Page, 2007

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Murray Steele

The Independent Chairman and Non-executive Director Survey, Independent Remuneration Solutions, 2006

T. McNulty, J. Roberts and P. Styles, Creating Accountability within the Board: The Work of the Effective Non-executive Director: A Report for the Review of the Role and Effectiveness of the Non-executive Director, London: Department of Trade and Industry, 2002

Glynis D. Morris and Patrick Dunne, Tolley’s Non-executive Director’s Handbook, London: Lexis Nexis Tolley, 2003

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