The effectiveness of NED’s

The effectiveness of NEDs

Non-Executive Directors are appointed by organisations to provide creative, impartial contribution to the board. NEDs achieve such contribution by providing independent oversight, specialist knowledge and constructive challenge to executive directors.

NEDs bring many professional and personal qualities to both private and public sector boards and can offer a business incredible value, providing the right appointment is made.

As the Institute for Entrepreneurship and Enterprise Development (IEED) at Lancaster University notes:

“A strong NED can provide constructive challenge, objective insight, an ability to look ahead without being submerged in operational issues, first rate networks and contacts and experience gained from having ‘been there and done it’ before.”

Being highly experienced in the market, NEDs are effective in guiding and bringing confidence to an organisation through impartial direction.

The typical key responsibilities of a NED include:

  • Providing strategic direction through creative and informed contribution.
  • Monitoring the performance of executive managers, particularly in relation to achieving company strategy and objectives.
  • Preparing succession planning to ensure senior management is ran effectively.
  • Delivering the appropriate levels of remuneration to executive directors.
  • As NEDs are typically “outsiders”, they can help improve a business’s network of outside contacts and opinions and often represent the company externally.

NEDs typically serve two three-year terms at an organisation but may be asked by the board to stay for an additional term.

NEDs and gender diversity

Refreshingly, a growing number of women are being appointed as non-executive directors. Some of Britain’s largest companies are meeting Lord Davies’ diversity targets of a third of all boardroom positions being given to women, by bringing female NEDs onto boards.

However, despite inroads being made in the gender diversity of NEDs, further progress needs to be made, as research shows NED appointments are not making the same level of progress on female representation among company directors.

Challenges of NED appointments

Bringing more female NEDs to boards is not the only challenge of NED appointments. Being highly experienced in their field and an effective leader, it is a challenge for NEDs not to be too closely drawn into making executive decisions, choices that should stay in the hands of executive.

That said, NEDs should allocate adequate time and effort into their position to meet board responsibilities and objectives. As the UK Corporate Governance codes states:

“Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account.”