A non-executive director’s role is to bring independent judgment to the board of a company. In doing so, they can bring experience, impartiality, specialist expertise and personal qualities to assist executive members of the board.
The position can require individuals to take a view on matters of strategy, performance, resources and standards of conduct of the company.
Before taking a position, it is therefore important that prospective directors do their homework on the company.
The Primary Duties of a Non-executive Director
A non-executive position can afford individuals many privileges including power, influence, and status but it also bestows them with a corresponding responsibility. In fact, legally there is no distinction between executive and non-executive directors. It therefore follows that directorship appointments can have serious consequences for individuals if mistakes are made in the running of a company.
The main duty of all company directors, including non-executive directors, is to exercise reasonable care, skill and diligence when carrying out the management of a company or making decisions on behalf of a company.
As a non-executive director is usually distanced from the executive directors who carry out the day to day decisions and running of a company, the ICSA (Institute of Chartered Secretaries and Administrators) guide recommends that non-executive directors:
- Take responsibility for their own training and continuous development.
- Be prepared to provide independent advice and constructively challenge decisions.
- Promote the communication of high quality information to them.
- Make decisions that are in the interest of the company.
- Avoid any conflicts of interest.
Due Diligence for Non-Executive Directors
Given the nature of the responsibilities and the lack of direct control over a company’s operations, it is crucial that anyone thinking about accepting a non-executive director position conducts their own due diligence to see whether they can provide the time, qualities and characteristics it requires.
When a prospective director looks to undertake due diligence there are a few key places to begin their search. For example:
- Inspection of the company annual report, website, regulatory and media announcements to see how it presently positions itself according to the business model, corporate governance, market environment and dynamics, recent operational performance, current strategy, risks, sustainability and financial performance.
- Meetings with the CEO, the CFO, the chairman, the entire board, the company secretary and the nomination committee to get a feel of the dynamics of the company, its employees and the board.
- Reviewing the annual board meeting schedule to see whether he/she can be in attendance of all or most of the meetings.
- Inspecting other available documentation such as a recent listing prospectus, corporate social responsibility reports, environmental reports, voting service reports, press reports, analysts’ reports and rating agency reports.
In the case of listed companies, the prospective directors should become familiar with insider trading and market abuse laws and regulations for the purposes of handling inside information he/she may be privy to.
For more information about the role of non-executive directors or carrying out due diligence please contact James Crichton via e-mail jcrichton@rollingsons.co.uk or by telephone on 0207 611 4848.
