A non-executive director is a member of a company’s board of directors who is not part of the executive team. A non-executive director typically does not engage in the day-to-day management of the organization but is involved in policymaking and planning exercises.
The Code states as a principle that the board should include a balance of NEDs and executives. This is to reduce an unfavourable balance of power towards executives.
The board should consist of half independent NEDs excluding the chair.
One NED should be the senior independent director who is directly available to shareholders if they have concerns which cannot or should not be dealt with through the appropriate channels of chairman, CEO or finance director.
Reasons for NED independence:
– To provide a detached and objective view of board decisions.
– To provide expertise and communicate effectively.
– To provide shareholders with an independent voice on the board.
– To provide confidence in corporate governance.
– To reduce accusations of self-interest in the behaviour of executives.