Understanding the differences between non-executive directors and company directors for offshore boards
Look in any dictionary and you will find several meanings of the word ‘director’. It may refer to the person who leads an organisation or a department. It may refer to a member of a board. Or it may even be used to describe someone who is managing actors or musicians in a production.
While a director can be many things, a non-executive director is generally just one. A non-executive director, or NED, is an independent member of the board of directors for a company or organisation. They may have worked within the industry, or even, previously, within the organisation, however, they cannot be a member of the executive management team.
The 1992 Cadbury Report stated that non-executive directors “should bring an independent judgement to bear on issues of strategy, performance and resources including key appointments and standards of conduct”.
Organisations value NEDs for their professional experience and independence. Therefore, independent non-executive directors should not have close ties with the organisation. For example, they should not have worked with the organisation within the past five years nor receive remuneration from the organisation other than fees related to NED work.
What does a non-executive director do?
Firstly, a non-executive director will attend board meetings for the organisation, and contribute to planning policies and guiding strategy. Secondly, they will scrutinize, and challenge management. And thirdly, they will protect the interests of shareholders and key stakeholders, and uphold corporate governance.
Non-executive directors on offshore boards may also play a role in assessing the remuneration of executives, through membership of a remuneration committee. And, offshore NEDs will ensure company accounts are audited correctly, accurately representing the financial position of the organisation.
The legal implications of being an executive or a non-executive director may vary depending upon the jurisdiction. However, both roles involve a responsibility to act in the best interests of the organisation.
The UK Corporate Governance Code recommends that NEDs comprise half the board, although, different organisations refer to different codes. For example, large unlisted companies may use the Wates Corporate Governance Principles, while not-for-profits may follow the Charity Governance Code.
In Jersey, Article 74 of the Companies (Jersey) Law 1991, states that directors should:
“(a) act honestly and in good faith with a view to the best interests of the company; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”
Therefore, non-executive directors may find themselves personally liable if they fail to act in these ways.
How much work does a non-executive director role on an offshore board involve?
Non-executive directors generally serve on a board for up to nine years. During this time, they should attend all board meetings which may be anything from quarterly to monthly.
In order to fulfil their responsibilities, a NED should prepare for the meetings thoroughly, reading Board papers and other materials in advance, in addition to speaking to board members on issues as required, and following up to resolve matters that may have arisen during board meetings.
According to the PwC Channel Islands NED Remuneration Survey 2018/2019, non-executive directors in the Channel Islands working with London Stock Exchange premium listed entities worked an average of 25 days a year, down from 27 days in 2015.
Non-executive directors are responsible for ensuring they remain up to date with what is happening in the company or organisation and its sector, and undertaking sufficient training to fulfil their duties.
Are you looking for a non-executive director position in the Channel Islands or another offshore jurisdiction?
Join Club NED to find out about new non-executive director jobs in your area.
