What do non-executive directors bring to the table?

While only certain companies are obliged to appoint non-executive directors, for a variety of others, it’s seen as good practice.

Should your company consider such a step?

This article discusses what to think about regarding a non-executive director.

Here’s what we cover:

What is a non-executive director and what can they bring to the table?

The Corporate Enforcement Authority outlines that non-executive directors are not involved in the day-to-day management of the company and are external appointees.

The rationale for this is that they can bring an independent voice and perspective to the board and should be willing to challenge board discussions and decisions when necessary.

Non-executive directors are also chosen because they:

• Have a breadth of experience
• Have specific skills
• Can bring specialist knowledge to the board.

As such, a non-executive director is a key player in corporate governance and most importantly has the same significant responsibilities and duties as an executive director, as outlined in Section 228 of the Companies Act 2014.

Also, while all directors are expected to practise good governance, a non-executive director is often held to a higher standard.

Key attributes of a non-executive director

While your company may have a very specific skill set in mind for a non-executive director, there are also general guidelines to look out for.

For instance, Chartered Accountants Ireland lays out a key list of essential skills for a non-executive director.

These are:

• Independent mindset, objectivity and integrity
• Diplomacy, tact, and negotiation skills
• Commercial and business understanding and insight
• High level interpersonal, communication and listening skills
• Strategic thinking and analytical capabilities
• Curiosity with the ability to challenge and seek clarity
• Governance and regulatory knowledge.

Advantages of appointing a non-executive director

Níall Fitzgerald has extensive experience of working on boards.

He is head of ethics and governance at Chartered Accountants Ireland, a board member and board committee chair for the charity Age Action, and a member of several global advisory committees for other professional bodies.

He also co-founded Chapter Zero Ireland, a non-governmental organisation (NGO) that aims to build a community of non-executive directors knowledgeable about the impacts of climate change.

Níall points out that non-executive directors can be invaluable to oversight and decision making around the board table, filling gaps in knowledge and complementing the abilities of the management team.

He says: “The skills, experience, and expertise they bring can enable the organisation to be more informed, responsive, and better directed in the context of strategic choices, meeting stakeholder expectations, compliance, fostering a healthy organisational culture, defining and delivering on the organisation’s purpose, and ensuring the sustainable success of the organisation.”

He further adds that a company can also benefit from a non-executive director’s network of contacts, existing stakeholder relationships and established good reputation.

Disadvantages of appointing a non-executive director

It is imperative that the chosen non-executive director is the right fit for your company.

Niall says: “Many of the negatives can arise if the appointed non-executive director is not a good fit for the organisation.

“This may not be a bad reflection on the individual or the company, but rather the skills, expertise and/or experience does not complement the purpose, strategic objectives or current challenges the organisation is facing.”

He outlines some potential stumbling blocks.

Niall says: “For example, appointing a family member or a close friend of the CEO as a non-executive director may have certain benefits, but can give rise to negative issues such as a lack of objectivity driven by shared biases or over familiarity, and conflicts of interest arising when friendship is tested in the boardroom.

“Negative consequences may also arise if appointing an independent and very experienced former CEO from a different industry, if that individual has a dominating presence on the board, is less open to alternative ways of doing things and lacks skills or willingness to learn in relation to emerging risks such as artificial intelligence, sustainability, or geopolitical uncertainty, etc.”

He also says a good induction programme can help avoid many negative issues, such as unconstructive tensions between the appointee and other board members and management.

An induction programme can help avoid insufficient level of buy-in by the appointee in terms of the organisation’s purpose and strategic aims, and ensure that the appointee understands the business or industry.

What type of company would benefit?

While certain companies such as listed companies, state companies and charities are required to have a non-executive director, there are lots of other companies that may also opt for a non-executive director.

For instance, external investors often require startups to appoint a non-executive director.

Family run businesses can also benefit, as there can be a degree of groupthink within them and in particular, conflict can be difficult to resolve in such companies.

Another example can be a company that’s about to undergo significant change, such as perhaps exporting to new markets. In addition, a company facing an existential challenge, such as a print media company may also benefit.

Small and medium-sized enterprises (SMEs) can also benefit.

Niall says: “SMEs often have limited resources and may not have access to the same level of expertise and experience as larger companies. Having a non-executive director on the board can also enhance the credibility and reputation of the company and can help improve governance and accountability.”

How to recruit a non-executive director

It’s a big decision to decide to appoint a non-executive director and your company will need to do a cost/benefit analysis. There is also a huge variability in fees, depending on the size of your company, sector and level of commitment required.

Also, bear in mind, some appointees aren’t paid, such as in the charity sector.

However, if you’ve made the decision to appoint a director, where do you find one?

Ireland is a small place and many appointments are based on word-of-mouth or a recommendation.

However, this may not necessarily be the best way to find an individual and there are numerous organisations that can help in the search. Here are some examples:

• Recruitment agencies often offer non-executive search services, as do many accountancy and solicitor practices.
• Boardmatch.ie is a good starting point for charity appointments and state companies recruit through stateboards.ie, which is operated by the Public Appointments Service.
• Chartered Accountants Ireland also offers a non-executive search service for organisations seeking financial, audit, corporate reporting and corporate finance skills for their board.

Final thoughts

The world of business is becoming increasingly uncertain and beset by challenges such as disrupted supply chains, inflation and geopolitical conflict.

Appointing a non-executive director could help your company navigate these difficulties with a fresh eye, while also ensuring you keep an eye on your long-term strategic goals.

It’s definitely worth considering.