Non-Executive Directors: Drive for Change?
Non-executive UK directors are the focus of a commission just launched by the Institute of Directors (IoD). Their role is being investigated against the background of a changing landscape over the last two decades – and recent scandals. The IoD is looking particularly at the value they bring to corporate governance.
What are NEDs?
A non-executive director (NED) is a board member (duly appointed and registered as a director at Companies House) who is not actively involved in the normal day-to-day running of the company. NEDs are not typically employed by the company and are often consultants.
Their role is more supportive, providing independent oversight, knowledge and expertise; as well as challenging directors’ decisions and activities when appropriate; and helping to manage risks.
Importantly, there is no statutory definition of ‘non-executive director’ (you’re either a director or you’re not). Therefore, NEDs owe the same duties and responsibilities as executive directors and, therefore, must comply with company law.
What’s prompted the commission?
Announcing the commission, the IoD referred to recent corporate scandals and collapses which “have raised concerns about their [NEDs] effectiveness.”
While not noting it specifically, the Post Office scandal is one such case. Last October the IoD released a policy paper stating that “the root causes were failures in human decision-making, organisational culture and business ethics. Post Office governance – and specifically the board of directors – proved unequal to the task of addressing these issues.”
“A new approach to directorship is required”, it adds.
Commission focus
The 15-strong Commission, chaired by Baroness Evans, has been launched to investigate the role and contribution of NEDs. Specifically, it will evaluate the value they provide to corporate governance, identify the main challenges and obstacles facing NEDs and consider if and how they can be overcome.
It will also make recommendations to boards and policy-makers around the more effective deployment of NEDs.
Baroness Evans said the goal is to help towards “fostering a culture of responsible risk taking and effective governance, ultimately enhancing societal trust in UK business.”
The Commission will run until July 2025, and is expect to report its findings in the Autumn.
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