Legally, according to the CA2006, NEDs and Executive Directors have exactly the same powers and duties. This is because the CA2006 defines a director as anyone fulfilling the role of a director, howsoever named. This broad definition is why Shadow Directors and De Facto Directors are classified as directors and hence in the event of a liquidation could incur some level of personal liability.
The CA2006 does not distinguish between NEDs and Executive Directors. In fact it never uses the term “Executive” or “Non-Executive Director.”
The UK Corporate Governance Code on the other hand considers NEDs to have an important role at the board table, which is very different to that of the Executive Directors.
The code requires that NEDs should constructively challenge board proposals, to generate genuine discussion around strategic options. The main board committees should be mainly comprised of NEDS. These main committees are the Remuneration, Nomination and Audit committees.
The code does not just require NEDs to serve on these committees. It is particularly keen on iNEDs. That is NEDs with no prior links to the company or potential conflicts of interest. The code states that even if NEDs are independent upon appointment, they would lose that independence after 9 years of service. That is also the maximum recommended length of audit tenure for the same audit firm.
The code recommends that the Chair of the Board should be selected from amongst the iNEDs. The SID, Senior Independent Director, is also an important position that is filled by one of the iNEDs. It provides a source of independent advice and guidance available to all of the Board Directors.
To learn more about the roles and responsibilities of NEDs, you may benefit from attending one of our NED Roles and Responsibilities courses.