Over the past few years, the role of non-executive directors in the companies of the UK has increased manifold. Whilst the non-executive directorship is prominent in listed companies but over the years even private and small companies have also started to work with them and give them recognition. Let us understand how a non-executive directorship benefits private companies and how they formulate strategic analysis and advice to aid the better performance of the business.
Non-executive directors work with executive ones and together they form a board of directors of the company. They do not indulge in the managerial and operational functions of a company but have a major stake and role in formulating the critical policies and decision-making process of the company. These directors are chosen after extensive screening and based on their qualifications, expertise, and knowledge base.
Despite not incorporated formally into the strategy formation, he is still a crucial part of the board of directors and is liable for the company’s success and failure. However, they are not held responsible for executive considerations of the company as they are not an employee of the company.
How it is different from executive directorship?
Here are the key differences that set apart non-executive directorship from executive directorship.
- Executive directorship makes the manager both the member of the board of directors and the employee of the company. While non-executive directorship is only limited to giving a major stake in the board of directors of the company. Non-executive directors work with the purpose to make the organization’s decisions and strategies more goal-oriented.
- The executive director operates regularly and has to take care of the company’s affairs. On the other hand, the non-executive director works independently of the managerial operations and the related parties.
- Executive directors are basically the employees of the company who get salary on monthly basis. While the non-executives gets paid in the shape of service charges for the services rendered by them to the company.
- Executive directors are selected by the company’s shareholders and by a committee selected for performing such tasks. The shareholders of the company solely appoint the non-executive directors of the company.
How does non-executive directorship work?
Considering the nature of work and the time offered, non-executive directors give relatively less time to the company’s affairs when compared with the executive directors. Even the non-executive directors are appointed with the aim to strategize plans more effectively and improve the growth of the business, they play a different role in different organizations.
During the board meetings and otherwise, some of the works of non-executive directorship include:
- Formulating a plan with the executive directors to work out the business strategies and reach goals.
- Evaluate business performance over a period of time and assess the management’s performance keeping in mind the targets and objectives formed earlier.
- Cross-checking the veracity and accuracy of the financial and other information received.
- Ensuring the efficacy and reliability of risk management plans and processes.
- Play a role in appointing executive directors and finalizing their remuneration.
The role of the non-executive directors varies in accordance with the nature and size of different companies. Also, the stage of development that a company is in matters when it comes to appointing non-executive directors of a company. Their hiring and firing are done every year by the shareholders of the company.