Non-executive director

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A non-executive director (abbreviated to non-exec, NED or NXD) or outside director is a member of the board of directors of a company or organisation 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.[citation needed]

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.

Objectives[edit]

Non-executive directors have responsibilities in the following areas, according to the Higgs Report published by the British government 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

Appraisal objectives[edit]

Some organisations appraise non-executive directors on general overall performance criteria such as in the Higgs Report, as above,[5][6][7] whereas others in addition set specific individual objectives,[8] which may be specifically linked to the overall organisation goals.[9]

Qualifications[edit]

Generally non-executive directors do not have specific academic qualifications for the role. However in 2011 the Financial Times launched the first formal qualification specifically for Non-Execs, the 'Non-Executive Directors Diploma', a level 7 masters postgraduate qualification accredited by Edexcel.

See also[edit]

References[edit]

Further reading[edit]

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