Difference Between Executive And Non-Executive Director

An executive director may be a member of a board or firm who is additionally an employee of the corporate and has management responsibilities. Executive directors have executive responsibilities for running the company’s day-to-day business activities. They’re usually a senior executive or a member.

The UK Corporate Governance Code states that the executive director remuneration policy and practices should be clear, simple, risk-based, predictable, proportional, and aligned to the company’s corporate culture. There is nothing to stop an executive director of one board becoming a non-executive director on another company’s board. Approximately 30% of executive directors have non-executive roles elsewhere. The executive director role is important because it ensures that the rest of the board receives an accurate representation of management and operations.

A non-executive director isn’t an owner or a member of the family of a company owner. Professional advisors aren’t necessarily non-executive directors; however, professional advisors who are officially appointed as board directors may provide professional advice as a non-executive director who is additionally a talented professional.

The value in non-executive directors is that they supply independence and objectivity in their opinions because they need no responsibility for the daily management or operations of the corporate.

The role of non-executive directors is broad. The corporate appoints non-executive directors through a letter of appointment and doesn’t employ them. The non-execs challenge, question and monitor the CEO and senior management; they convey an independent perspective to decision-making; they hold senior management to account; they also support and mentor the CEO and senior management. They’re a “critical friend” and must act within the interests of the company’s stakeholders.

Key Differences between Executive and Non-Executive Director –

Upcoming points will discuss the difference between Executive and Non-Executive Director:

Executive Directors –

  • The essential characteristic of an executive director is his or her discharge, usually as an employee, of executive functions in the management and administration of the company.
  • Executive Directors are not just a member of the company’s board, but they are also the employees of the company, charged with executive responsibilities of managing the enterprise.
  • Executive Directors have “executive responsibility” for running the company’s business.
  • Executive Directors will typically be elected by employees and shareholders and might be an employee, officer, or stakeholder in the company.
  • The executive directors are the salaried employees of the company.
  • The main task of the executive directors is the formulation and implementation of the strategies and policies.
  • The company’s or organization’s Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Managing Director (MD) are the executive directors of the firm.

Non-Executive Director –

  • Non-executive Directors are the independent directors of the company appointed with the aim of bringing a certain degree of objectivity in the organization’s decision. They are the external directors of the company or organizations.
  • Non-executive directors tend to be cherry-picked for their personal qualities, experience, and specialist knowledge.
  • The non-executive director is appointed under a Letter of Appointment, as they are self-employed.
  • A non-executive director is independent of the company’s management as well as of the interested parties.
  • Non-executive directors will provide objective criticism on board matters “constructive challenge” and facilitate strategic decisions by the executive directors.
  • The non-executive directors get service fees as remuneration for the services rendered by them.
  • The non-executive directors tend to consider and review the company’s strategies and policies.

Executive directors and non-executive directors serve different and important roles on a board of directors. Board management software is a very important tool that brings both varieties of directors together for secure collaborations and communications. Diligent Boards features a feature for granular permissions, which provides non-executive directors with the flexibility to speak separately from the chief directors as necessary.

 

Information Sources:

  1. keydifferences.com
  2. insights.diligent.com
  3. business-steps.com