UK public companies have long appointed non-executive directors (NEDs) to their boards. More recently, private companies have recognised the value that experienced, objective and regular advice can add to a board. Private equity firms have known this for years, and routinely protect and build their investment by requiring the businesses they back to appoint an NED.
NED role and responsibilities in a private company
The role of NEDs in private companies is usually modelled on the role in public companies, although strictly speaking it is not subject to the UK Corporate Governance Code. In law there is no distinction between the duties of executive and non-executive directors.
Whether a company is large or small, public or private, every director takes on significant legal duties:
- acting within the company’s constitution, its articles of association
- promoting the success of the company for the benefit of its shareholders as a whole
- exercising independent judgement by forming their own informed view of the company’s activities
- exercising reasonable care, skill and diligence
- avoiding, or disclosing, conflicts of interest that may affect their objectivity
- making sure minutes of board meetings are kept as a record of the board’s decisions.
Unlike an executive director, who normally works full time, an NED works part time and cannot reasonably be expected to have the same detailed knowledge of the company’s affairs. Should an NED ever face a legal challenge, this would be taken into account.
The NED is not involved in day-to-day management. On top of the duties every director carries, the NED is expected to:
- constructively challenge and help develop the company’s strategy
- take an active part in the board’s decision making
- scrutinise management’s performance against agreed goals and objectives.
What to do before joining a board
As a prospective NED, you should:
- carry out enough due diligence to be confident the company is one where you can make a strong, value-adding contribution
- understand the level at which you will be expected to perform: more is expected of you in your own area of skill or experience
- form a judgement on the culture, values and behaviours of the board, because your role is to uphold high standards of integrity
- decide whether you like the CEO and the other directors, and whether they like you
- gauge whether the board is open enough to support clear, collaborative decision making
- review the letter of appointment to satisfy yourself that you can meet the minimum time requirement
- disclose any conflict of interest and seek authorisation from the other directors.
What to do once you are on the board
Once in place as an NED, there are six main things to do:
- Complete a thorough induction programme tailored to you.
- Get the schedule of board meetings well in advance, and insist on high-quality papers early enough to prepare properly and make a meaningful contribution.
- Provide independent oversight through constructive, robust challenge, and help develop strategy by bringing your experience and expertise to bear.
- Take specialist, independent advice when you need it. The letter of appointment normally sets out how this works and when your costs will be reimbursed.
- Discharge your statutory duties as a director.
- Be prepared to resign in certain circumstances, although you should always talk first to the chair or other senior directors, and consider independent professional advice.
In summary
- As an NED in a private company you have the same duties and responsibilities as an executive director, but the part-time nature of the role means your focus is independent oversight.
- Before joining a board, do enough due diligence to be sure it is the right company for you.
- Once in place, apply your experience and expertise to add real value to the business.
I sit on the board side of this question as a Non-Executive Director and Board Adviser to private, PE-backed and growth-stage businesses in consumer goods, industrial and technology sectors. More on how I work with boards is on the Board Advisory and NED page.