Although there is no legal distinction between the powers, duties, responsibilities and liabilities of executive directors and non-executive directors, the two play different roles on a board of directors. Balancing the roles can be vital to optimising the performance of the board.
The Role Of Executive Directors
Executive directors are employees of the company. They have a thorough knowledge of the company and they manage the day-to-day operations. In basic terms, the executive directors run the company and deal with the preparation of and implementation of the strategic plans and business plans of the company.
The Role Of Non-Executive Directors
The non-executive directors do not have executive responsibilities and generally focus on board matters. As they are not involved in the day-to-day running of the company, they should be objective and have a more independent perspective of the business. They should have the same access to information as the executive directors and should constructively challenge management when required to ensure the company meets agreed goals and objectives
Benefits Of Appointing A Non-Executive Director
- Non-executive directors can bring specialist knowledge, skills and expertise to the board;
- They can provide vital strategic support to the board and can, in some circumstances, critically review business plans from a different perspective to executive directors;
- As non-executive directors are not involved in the day-to-day business, they can bring fresh and impartial views to the board;
- They may have valuable contacts in certain fields, which can be vital to the development of the business;
- Executive directors tend to focus very much on the running of the business and non-executive directors can ensure that the directors focus on areas such as good corporate governance as well as the business.
Balancing The Roles
An ideal board will have a range of skills and experiences that are relevant to the company. Research has indicated that the highest performing companies are those governed by boards whose members are willing to challenge the status quo and who see healthy disagreement as a key component of a culture of continuous improvement. The role of the non-executive directors on a board can therefore balance that of the executive directors.
In order to avail of the benefits of having non-executive directors on the board, the board should ensure that the roles remain distinct. This should enable the non-executive directors to assist the board with their objective and impartial views whilst the executive directors deal with the management of the company. The skills of the board should be regularly reviewed and analysed to ensure that optimal performance is achieved.
Companies Act 2014 – Additional Responsibilities
Director’s Duties have been codified and placed into Part 5 of the Companies Act 2014 in order to provide transparency as to the role of company directors. This clarification on director’s duties provides a centralised reference point for directors when considering their duties and responsibilities. All directors whether executive of non-executive should be fully aware of their duties, responsibilities and liabilities.