Introduction to non-executive directors

The contacts and experience of a non-exec director could help in the long-term

Most people have heard the term non-executive director without actually knowing what they are, much less what they can potentially do for a start-up or growing business.

But those who are in on the non-executive secret know that they can add knowledge, contacts and general ‘been there, done that’ wisdom to a company’s board. All of which cannot fail to be of value to a company whatever its size. Allow us to enlighten you.

What is a non-executive director?

A non-executive director sits on the board of a company along side the executive directors. They act as an independent voice on every important decision. He or she will not work full time, though, and won’t be concerned with day to day issues.

They will have to have a full understanding of the running of the company. This means knowing what each department does and being familiar with monthly sales figures and accounts. This allows them to make informed decisions in the interests of the company.

There is a distinction between the role of a non exec in a larger company and one in a startup or smaller one.

As with any contract, there will be arranged working hours. In larger businesses, this time will be spent in board meetings. But start-ups often need someone who is willing to roll up their sleeves and get involved on the days they are in the office. There is time for this because board meetings won’t tend to be such long formal affairs.

But with bigger companies, the board meeting part will take up a much longer time and the non executive will not be required to deal with specific issues.

Pros and cons

Pros

They are outsiders and you should be able to rely on them to be objective.

They should be able to balance the need for short term profit and long term results.

Minimising crises should come more naturally as they have probably seen it all before.

Cons

Experienced non execs may be tempted to interfere where they are not needed.

You may feel a non exec is superfluous in a company that runs well without one.

Even if fees are small, there is a risk that non execs may not pay for themselves.

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  1. Corporate Governance guidelines recommend that Non Execs should outnumber the Executives on the Board and adding Non Execs provides the greatest scope for getting the right balance of skills and personalities on a Board.