What Is A Non Executive Director And Why Are They Important?

Non-executive directors (otherwise known as NEDs) have been gaining prevalence as a useful business addition in all industries during recent years. From charities to marketing companies, we’re all realising the benefits that a team member like this can bring to our businesses.

If you’re new to the concept, though, NEDs can seem daunting. This is no ordinary working relationship, after all, and you might not have even heard of such a thing. Fear not; because we’ve got a total breakdown of non-executive directors and what they can bring to your company. 

What are NEDs anyway?

The basic definition of a non-executive director is someone you bring onto your board who is not an executive of your team. NEDs typically work on a contractual basis to provide an independent evaluation of any given company. They achieve this by focusing on board matters rather than executive direction, and can, therefore, provide general counsel on a few key business processes.

Some key responsibilities of an NED include – 

  • Strategic direction
  • Performance monitoring 
  • Communication with potentially helpful connections
  • Risk management
  • Audit

Focus areas of NEDs tend to centre around both existing executive management and key business processes like marketing. Here at Audeo Bristol marketing agency, for instance, we provide businesses with remote marketing directors across the South West of England. They then analyse everything from management to SEO results and more. This, in turn, could lead to significant ripples within a business marketing team. 

Why does this matter?

So, why exactly NEDs are so vital in any business landscape? Some common benefits found from this way of working include – 

  • An impartial view
  • A cost effective way to specialised services
  • A chance to create new business contacts
  • A way to minimise damage in the case of disaster
  • A way to oversee executives

Compensation for NEDs?

Given that a non-executive director works on a contractual basis, it’s also essential to consider compensation. This ensures you make the most of cost-saving benefits while still appealing to the best non-executive directors.

This can be more complicated than you might expect given there’s no set governance. There’s also no quantifiable way to prove the value a NED can add to a company. That said, we’re starting to realise that this is a valuable business commodity, with the latest studies in 2016 revealing NEDs working with the top 30 companies in the FTSE earn up to £83,000 per annum.

As with any contractual working relationship, then, it’s largely worth compensating a NED depending on the time they spend with your company. Funding for this could come from a variety of different places within your company. If your NED is working within a particular area, such as marketing, their expertise should add enough profit to cover this expense from your marketing budget. In the case of a new business enterprise, it may be worth looking to angel investors to temporarily cover NED costs. One thing’s sure; finding a way to pay a non-executive director could soon see your company soaring.