The role of the non-executive director has changed significantly over the past ten years. Successful non-executive directors need to be strong independent voices in the boardroom and fearlessly challenge any governance breaches.
Research by the Association of British Insurers’ found that the share prices of firms that breached the City’s Combined Code of corporate governance underperformed, mainly when their boards were made up of executive rather than non-executive directors.
Companies with good corporate governance and with strong non-executive voices in the boardroom make more money – they create more value for their shareholders.
A vocal non-executive director is important
Non-executive directors should never be “the decorations on the Christmas tree” as the late Tiny Rowland of Lonhro famously described them.
The non-executive director’s role is to police the board in a strategic, polite and factual manner.
Being a non-executive director involves a legal obligation of the highest degree. If a non-executive director doesn’t challenge bad corporate governance or ethical breaches, they can fall foul of the law.
A company’s board of directors carries the heavy-duty of governance to ensure a duty of care is observed. Very high expectations of good governance are placed on directors, but more so on the shoulders of independent, non-executive directors.
Nine traits of highly successful non-executive directors
Educated
A non-executive director is not a decorative ornament; they play a vital role in governance. A successful non-executive director understands good corporate governance and challenges poor decisions.
Fearless
Non-executive directors are fearless; they cannot feign ignorance of the company’s operations as they must sound alarm bells when necessary.
Independent
A non-executive director should be independent of management and not have a relationship with the business that could interfere with their duty to act in the company’s best interests.
Financially literate
Non-executive directors must ensure the integrity of published financials and oversight of non-financial issues relating to the environment, governance and corporate social responsibility. A qualification in corporate governance is desirable.
Vocal
Non-executive directors are not acting in the “best interests” of the company they serve if they are silent about breaches of regulations and questionable management practices. Great non-executives speak out constructively.
Challenging
Non-executive directors are expected to speak up if their company’s board is compromising on ethical issues.
Audit savvy
Non-executive directors should constitute a majority in the audit committee of the board. It is also useful if the committee has a practical internal audit function which reports directly to it.
Strategic
Non-executive directors should provide objective and independent advice to the board to enable it to make better decisions in all shareholders and stakeholders’ interest.
A catalyst for change
When appropriate, a non-executive director should act as a catalyst for change and challenge the status quo.
BECOME A NON-EXECUTIVE DIRECTOR
If you need professional guidance on your duties as a non-executive director, the Corporate Governance Institute can help. You can develop your career as a non-executive director with a globally-recognised, university-approved Diploma in Corporate Governance.