The Wire: Spring 2021 – Key things you need to know about getting a non-executive directorship

(Estimated read time 5 minutes)

Key things you need to know about getting a non-executive directorship

There’s no doubt that the retirement landscape is changing. An LV= report found more 55 to 64-year-olds than ever are taking early retirement – partly due to the pandemic – while the Pension Freedoms legislation has also revolutionised the way people access their pension pots. 

Also, gone are the days of having a job for life, taking a final salary pension, retiring, and spending more time with the grandchildren. 

If you want to have a more active approach to retirement – filling your days with a new work challenge for a firm, not-for-profit organisation, or FTSE 100 company – could a role as a non-executive director be something to consider?

A non-exec role is one way of remaining involved in the world of work while enjoying your retirement. Rather than spending all day at your local health club or in your garden, you could be adding value to a business, broadening your experience, and generating an additional income.

Here’s some useful information if you’re thinking about taking on such a role.

What is a non-executive director?

A non-executive director provides an independent viewpoint (when required) and constructive challenges to the existing executive directors of a firm, whether that is in the public or private sector.

What is the difference between an executive and a non-executive director?

According to the Companies Act 2006, company law recognises no distinction between executive and non-executive directors. All directors, both executive and non-executive, are regarded as “officers” of the company. 

Executive directors deal with the day-to-day management of the company’s business, while non-execs are often more involved in strategy or governance.

Non-execs are not employees but are appointed. The main features of a letter of appointment are:

  • The time commitment required for the role
  • Details of any board committee posts you are to hold
  • Fees for your role.

In addition to this, the letter will also contain detailed reference to the above-mentioned Act, which says you must act in the long-term interest of the business, all stakeholders, and the wider community.

It’s worth noting here that, even though a non-executive director is not part of the day-to-day management team, you will still be registered as a director and have legal accountability. Your duties are the same as executive directors despite the lack of detailed knowledge that comes with only being involved part-time. The risk is something you should be aware of when you’re invited to take up such a position.

Why a non-executive director is important

A non-executive director is important for a business as:

  • They can act as a sounding board for the executive directors.
  • They provide an independent and objective point of view.
  • They complement the existing skills and expertise of an executive team.
  • They can bring a wealth of experience gained in different roles and environments.
  • They can offer a different perspective which might enrich and challenge the existing boardroom culture.

What types of business or organisation hires a non-executive director?

Any public or private sector firm can hire a non-executive director, including charities, the NHS, national museums, galleries, regulatory bodies, advisory bodies or professional services firms. 

Non-executive directors can also be found in the academic and voluntary sector.

Remember that non-execs should, ideally, be independent. Under the corporate governance code of the UK, non-executive directors should neither be former employees nor people who have had a “material business relationship” with the company of the board they wish to join.

What qualities do you need to become a non-executive director?

To become a non-executive director, you typically need to have the following skills and attributes:

  • Leadership
  • Analytical and creative thinking
  • Intelligence
  • Problem solving
  • Teamwork

“The role of a board member is increasingly complex, and requires specific skills and knowledge,” Dr Roger Barker, head of corporate governance at the Institute of Directors (IoD), told the FT

“It is not merely the natural extension of an executive career. Although the law defines few prerequisites for becoming a company director, those who wish to exercise their role in a professional manner will recognise the need for a significant investment in their own skills and competencies before accepting a board-level mandate,” he added.

How to get experience as a non-executive director

There are many routes to becoming a non-executive director, and it is important and necessary to have the relevant experience. You can get this by volunteering your skills and experience to a professional body or organisation, such as to a school, where you can perhaps become a governor.

If charity work is your passion, you can take an unpaid role as a non-exec for a not-for-profit organisation or charity.

Another way of getting experience as a non-executive director is through your own personal or professional network of colleagues, friends, or family. They might be a non-executive director and they will be able to give you some insights into what they do, or perhaps act as a mentor through your journey to become a non-executive director.

You will also need to prepare your CV. Your résumé needs to outline the experience you can bring to a board, the specific skills you have, and your understanding of corporate governance codes and guidelines. It is also important to outline the key strategic successes of your own career.

One place to start would be to build up your professional profile on social media networks such as LinkedIn, and be sure to build up your connections while you are still working.

You can then approach executive recruiters, industry professionals or head-hunters. If this recruitment approach is not for you then you can look at the recruitment sections for suitable roles in national newspapers such as the Financial Times, the Guardian, or the Times.

It is important to be clear what type of company you would like to work for. For example, a small business might want their non-executive director to focus on operations, whereas a larger – perhaps a FTSE 100 firm – might want their non-executive director to focus on governance.

You also need to be proactive in your approach when looking for a role and give yourself plenty of time accruing the relevant experience, perhaps 12 to 18 months.

How much does a non-exec get paid?

The salary of a non-executive director varies considerably depending on the scale and structure of the business. 

According to the Institute of Directors (IoD), non-execs at smaller companies can typically expect to earn anywhere from £15,000 to £25,000 per annum, depending on their experience and the level of involvement expected of them. 

Remember that you are likely to have to commit 15 to 25 days a year, and it is hard work, especially in the first few months. The role will involve much more than simply attending scheduled meetings and reading in preparation for them.

At SMEs, non-exec earnings rise to around £38,000 to £40,000, while a non-executive director at a FTSE 250 company can receive anything from £40,000 to £60,000. Some top-level non-executives at the highest level in FTSE 100 companies even reported earnings more than £100,000.

Non-executive positions can also be unpaid, but worthwhile and rewarding. This is usually the case if you take up a non-executive role in the voluntary, charity or public sectors. There is an element of crossover from the private to the public sector and vice-versa when it comes to appointing a non-executive director.

Overall, becoming a non-exec can be a rewarding experience, not only from a professional standpoint but from a personal one. You will be responsible for contributing to the overall success of a business, charity, or not-for-profit organisation, and you’ll learn new skills, broaden your professional network and, of course, generate an additional income.

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