What Is A Non Executive Director

by Dean Bower - Date: 2010-08-27 - Word Count: 537 Share This!

There is no legal distinction made between executive and non-executive directors - the difference is that non-executive directors do not get involved in the day-to-day running of the business. Non executive director does not participate in the day-to-day management of the firm. They use their experience and expertise to provide independent advice and objectivity, and they usually have a role in monitoring executive management. Non Executive Directors are usually involved in planning and policy making, and is sometimes included to lend prestige to the firm due to his or her standing in the community. Non-executive directors are expected to monitor and challenge the performance of the executive directors and the management, and to take a determined stand in the interests of the firm and its stakeholders. They are generally held equally liable as the executive directors under certain statutory requirements such as tax laws. Also called external director, independent director, or outside director.

A non-executive director might be appointed to carry out a specialist role on a part-time basis or for their expertise in specific activities, such as strategy and contract negotiation.They may be regarded as employed by the business or self-employed under a contract for services, depending on the terms and conditions of engagement. They usually work part-time, attending board meetings and spending time on specific projects.

The non-executive directors do not have service contracts but do have letters of appointment detailing the basis of their appointment. The non executive directors are normally appointed for two consecutive three-year terms subject to review after the end of the first three-year period and with any third term of three years being subject to rigorous review and taking into account the need progressively to refresh the Board. They do not have periods of notice and the Company has no obligation to pay compensation when their appointment terminates. They are subject to re-election at the Annual General Meeting (AGM) following their appointment and subsequently at intervals of no more than three years.

Non-executive directors are proposed by the Nominations Committee and are appointed by the Board on the basis of their experience to provide independent judgement on issues of strategy, performance, resources and standards of conduct. The letters of appointment for non-executive directors detail the amount of time it is anticipated that the individual will need to devote to his or her duties as a director, being 15 days per year plus additional commitment for chairing a committee or undertaking the role of Senior Independent Director. The level of their fees is set by the Non-Executive Directors' Fees Committee to reflect this time commitment and responsibility, and after reviewing practice in other comparable companies.

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