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  The Role of Non Executive Directors

Introduction to the Role of Non-Executive Directors

Not so long ago, the image of the non-executive director was that of an avuncular figure offering kindly guidance and advice to the board concerning the direction of the company. This was not seen as an unduly onerous role and any time spent on the company's affairs could be confined to board meetings and in perusing background documents for the various agenda items. Whatever truth such an image may have contained, it is not a faithful portrayal of the current role of the non-executive director of a UK listed public company. A significant result of strengthening corporate governance standards that was considered to earlier has been to increase the demands placed on the non-executive directors.

Non-executive directors are expected to contribute towards each of the functions of the board mentioned above and the contribution they make will largely depend on their background, personal qualities and experience. As we have seen, often nonexecutive directors of a listed public company are, or have been, executive directors of another listed public company and so will usually have experience of the commercial world as well as expertise in a specific field, like finance or marketing. As a result non-executive directors can often play a valuable role in discussions on strategy. They may make useful suggestions or may constructively challenge the assumptions and decisions of the executive directors.

Non-executive directors can also play an important role in monitoring and controlling the activities of the company. In working in the direction of the strategic plan, control mechanisms including budgets, plans, quality indicators and benchmarking may be used. The experience and skills of non-executive directors may enable them to identify weaknesses in the current control systems and to suggest ways of improving them. They might also be capable to highlight areas of poor performance.

Non-executives have an important role in the various board committees that are set up to control the activities of the company. It was mentioned earlier that, to promote the integrity of financial information, an audit committee is usually set up. The UK Corporate Governance Code states that this committee should consist entirely of non-executive directors, the majority of whom have to be independent non-executive directors. It was also described earlier that listed companies normally have a remuneration committee that is charged with recommending to the board the remuneration of the executive directors and the chairman. The UK Code states that this committee should also consist of independent non-executive directors. This means that non-executives have enormous influence over the remuneration of executive directors, and where there are performance-related elements, will be involved in setting targets and in monitoring the performance of the executive directors. The roles of both the audit committee and the remuneration committee will be considered in more detail later in the chapter.

Finally, we have seen that listed companies normally have a nominations committee. Its function is to lead the nomination process through recognizing the skills, knowledge and experience needed for the board and through preparing appropriate job specifications. The UK Code states that this committee should have a majority of independent nonexecutive directors as members.

The board and large shareholders often maintain a dialogue through informal meetings, which non-executives may attend. This can help them to appreciate the concerns of shareholders. At times, non-executives may become the shareholders' communications channel to the board of directors. Shareholders may be particularly reliant on this channel if they have already voiced concerns to the chairman, or to the executive directors, and have not received satisfactory replies.

Finally, non-executive directors may help to raise the profile of the company. They often enjoy a good reputation within their particular field and may have strong links with a wide range of bodies, including government agencies and foreign companies.

These links may be extremely valuable in developing new contacts and in promoting the company's interests.

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