What are the responsibilities of a non-executive director in a private company?

UK public companies have long been appointing non-executive directors (NEDs) to their boards. More recently, private companies have also recognised the value that experienced, objective and regular advice can add to a board. Private equity firms have long known this, and routinely seek to protect and enhance their investment by requiring the businesses they finance to appoint an NED.

NED role and responsibilities at a private company

The role of NEDs in private companies is typically based on that of NEDs in public companies — although, strictly speaking, it is not subject to the UK Corporate Governance Code. Furthermore, there is actually no distinction in law between the duties and responsibilities of executive and non-executive directors.

Irrespective of whether a company is large or small, public or private, all directors take 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 developing their own informed view on the company’s activities
• exercising reasonable care, skill and diligence
• avoiding — or disclosing — conflicts of interest that may affect their objectivity
• keeping minutes of board meetings to provide a record of the board’s decision-making process.

However, unlike an executive director, who will normally have a full-time role, an NED works part-time only, and therefore cannot reasonably be expected to have the same detailed knowledge and experience of a company’s affairs. Should an NED ever face a legal challenge, this factor would be taken into account.

The NED is not engaged in the day-to-day management of the company. Instead, in addition to the requirements for all directors, the NED is expected to:

• constructively challenge and help develop the company’s strategy
• participate actively in the board’s decision-making process, and
• scrutinise the management’s performance in meeting agreed goals and objectives.

What to do before joining a board

As a prospective NED, you should:

• conduct sufficient due diligence to give you confidence that the company is one to which you can make a strong and value-adding contribution
• understand the level at which you will be expected to perform: more is expected from you in the area of your specific skill or experience
• form a judgement on the culture, values and behaviours associated with the board, because your role is to uphold high standards of integrity
• decide whether you like the CEO and other directors and whether they like you
• gauge whether there is an openness around the board that supports clear and collaborative decision-making
• review the letter of appointment to satisfy yourself that you can meet the minimum time requirements
• disclose any conflict of interest and seek authorisation from the other directors.

What to do following appointment to the board

Once in place as an NED, there are six main things you should do:

1. Complete a comprehensive, tailored induction programme.
2. Ensure you receive a schedule of planned board meetings well in advance, and insist on receiving high-quality information sufficiently ahead of meetings so that you can prepare thoroughly and make a meaningful contribution.
3. Provide independent oversight through constructive and robust challenge to the board, and contribute to the development of strategy, bringing your experience and expertise to bear.
4. Seek specialist, independent advice if necessary. Normally the letter of appointment will confirm the basis upon which this may happen and when any expenditure you incur will be reimbursed.
5. Discharge your statutory duties as a director.
6. Be prepared to resign under certain circumstances — although you should always talk first to the chairperson or other senior individuals, and consider taking independent professional advice.

To sum up:

• As an NED in a private company you will have exactly the same duties and responsibilities as an executive director, although the part-time nature of the role will require you to focus on independent oversight.
• Before joining a board, you should have conducted sufficient due diligence to assure yourself that it is the right company for you.
• Once in place, you should apply your experience and expertise to add real value to the business.

Are you thinking of accepting a role as a non-executive director in a private company? For more insights into what will be expected of you, email me or call me on 020 7099 2621.