Non-executive directors · the role
What does a non-executive director do?
The short answer · updated
A non-executive director (NED) is a board member who is not part of the executive team. They challenge and support the board’s strategy, oversee risk, audit and pay, and hold the executives to account. In law they carry the same duties as any other director.
The NED’s job on the board
The Institute of Directors puts it simply: a NED provides independent oversight and constructive challenge to the executive directors. The UK Corporate Governance Code, which the IoD quotes, says NEDs should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account.
In practice that means four things. Testing the strategy the executives bring to the board. Monitoring how management performs against it. Satisfying themselves that the financial information is accurate and that risk controls are sound. And taking part in appointing, rewarding and, where needed, removing the executive directors.
A NED does this from outside the day-to-day business. The IoD says NEDs should focus on board matters and not stray into executive direction. They attend board and committee meetings, read the papers and spend time in the business, but they do not manage a function.
Independence
Independence is what makes a NED useful. The IoD calls independence of the company’s management of the utmost importance, because it lets a NED bring objectivity to the board and monitor the executives. The FRC’s UK Corporate Governance Code lists circumstances that can impair it: recent employment by the company, a material business relationship with it, pay beyond the director’s fee, close family ties with its advisers or senior people, cross-directorships, representing a significant shareholder, and long service on the board.
Not every NED is independent. Some sit on the board for an investor, which is normal in a private or venture-backed company. The board should be clear which NEDs it treats as independent, and why.
The Code applies to listed companies, but the FRC notes that many companies not required to follow it choose to. For a private company it is a useful description of what good looks like.
The committees: audit, remuneration and nomination
Much of a NED’s work happens in board committees. Under the Code, a listed company has three.
- Audit committee. Made up of independent NEDs, at least one with recent and relevant financial experience. It monitors the integrity of the financial statements and reviews risk management and internal control, and works with the external auditors.
- Remuneration committee. Made up of independent NEDs. It sets the policy for executive pay and the pay of the chair, executive directors and senior management, so that no director decides their own pay.
- Nomination committee. Leads board appointments and succession planning. A majority of its members should be independent NEDs.
Legal duties: Companies Act sections 171 to 177
A NED is a director in law, and there is no legal distinction between executive and non-executive directors (IoD). Every director owes the company the general duties in sections 171 to 177 of the Companies Act 2006, listed below.
Companies House guidance says these duties still apply if a director is not active in the role, or if someone else tells them what to do. Directors also carry filing and reporting responsibilities, and GOV.UK warns that a director who does not meet them may be fined, prosecuted or disqualified.
- to act within their powers (s.171);
- to promote the success of the company (s.172);
- to exercise independent judgement (s.173);
- to exercise reasonable care, skill and diligence (s.174);
- to avoid conflicts of interest (s.175);
- not to accept benefits from third parties (s.176);
- to declare an interest in a proposed transaction or arrangement (s.177).
Non-executive director vs executive director
The difference is the day job, not the law. An executive director runs part of the business, as chief executive, finance director or another role, and also sits on the board. A non-executive director sits on the board without running the business.
Both vote, both owe the same duties and both share responsibility for the board’s decisions. The IoD recognises that NEDs cannot give the company the same continuous attention as executives, but expects the same commitment to its success.
The Chartered Governance Institute describes the NED’s focus as independent oversight and expertise, and making sure the company meets legal and regulatory requirements and best-practice governance standards.
NED vs advisory board vs fractional executive
A NED is on the board: a director with a vote and a director’s legal duties, who does not run the business.
An advisory board member advises the board or the founders but is not a director and has no vote. Keep the line clear: the Companies Act duties can apply to a shadow director, someone whose directions the board is accustomed to follow, though advice given in a professional capacity does not on its own make someone one. For finance, our advisory CFO page covers the arrangement.
A fractional executive does executive work for part of the week, running a function and sometimes sitting on the board as an executive director. A company that needs the work done, not overseen, can hire a fractional CEO or hire a fractional CFO instead of, or as well as, appointing a NED.
What a non-executive director is paid
A company NED is paid a fee, not a salary. The Code says NED pay should reflect the time commitment and responsibilities of the role and should not include share options or other performance-related elements, to protect independence. The fee varies with the size of the company, its sector, whether it is listed or regulated, and the seat: a chair or committee chair takes on more.
We do not publish a fee band here. Our page on non-executive director recruitment explains how NED fees are set and taxed. Charity trustees and school governors are almost always unpaid.
Questions people ask
Does a non-executive director have the same legal duties as an executive director?
Yes. There is no legal distinction. Every director owes the general duties in sections 171 to 177 of the Companies Act 2006, and Companies House says those duties apply even if a director is not active in the role.
How much time does a non-executive director spend on the role?
There is no standard number of days. The UK Corporate Governance Code says NEDs should have sufficient time to meet their board responsibilities, and the appointment letter should say what is expected. The work rises in a crisis, a transaction or a leadership change.
Can a non-executive director be held liable?
Yes. A NED has the same duties and potential liabilities as an executive director (IoD). A director who does not meet their responsibilities may be fined, prosecuted or disqualified (GOV.UK). A prospective NED should ask whether the company holds directors’ and officers’ insurance before accepting.
Is a NED the same as a trustee or a school governor?
They are equivalent roles in other sectors. A charity trustee sits on the charity’s governing board and a governor on a school’s, with oversight duties of their own. Neither is a company director unless the charity is also a company, in which case its trustees are usually its directors too.
Does every company need a non-executive director?
No. Private companies are not required to have NEDs. Listed companies following the UK Corporate Governance Code are expected, on a comply-or-explain basis, to have independent NEDs and the three committees. Many private companies appoint a NED for independent challenge, investor oversight or expertise the board lacks.
How do I hire a non-executive director?
Our non-executive director recruitment page sets out the process: define the gap on the board, search wider than the chair’s contacts, test independence, time and conflicts, then run the checks before appointment.
